CALGARY, Aug. 1, 2013 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We",
"Our", "Us" or the "Company") (TSX, NYSE: VET) is pleased to report
interim operating and unaudited financial results for the three and six
months ended June 30, 2013.
HIGHLIGHTS
-
We recorded the strongest operating quarter in our history in the second
quarter of 2013. Thus far, our capital program has achieved better
than anticipated results, generating production growth in all four of
our business units. The Company previously increased production
guidance following the first quarter of 2013. However, in view of our
operational performance, we are further increasing our production
guidance for 2013 to between 40,500 and 41,000 boe/d, up from previous
guidance of 39,500 to 40,500 boe/d and original guidance of 39,000 to
40,500 boe/d.
-
Achieved record average production of 42,813 boe/d during the second
quarter of 2013, compared to 38,707 boe/d in the first quarter of 2013
and 39,168 boe/d in the second quarter of 2012. Quarter-over-quarter
growth resulted primarily from strong production additions from our
Cardium and Mannville drilling in Canada and high productivity from our
two-well sidetrack program in Australia.
-
Increased quarter-over-quarter production by 13% to over 9,500 boe/d
during the second quarter of 2013 from our Cardium light oil play in
Western Canada.
-
Continued our Mannville liquids-rich gas horizontal development program
by drilling our third Ellerslie well and bringing on production from
the second well which was drilled and completed during the first
quarter. In their third and fourth months of production, the first two
wells are averaging approximately 4.0 mmcf/d of sales gas and over 400
bbls/d of natural gas liquids (75% condensate) per well.
-
Completed a two-well sidetrack drilling program in Australia. The wells
were brought on production at restricted rates and have demonstrated
productive capacity in excess of 6,000 bbls/d and 3,000 bbls/d,
respectively. These wells are currently being produced intermittently
to match production to marketing arrangements and to maintain our
long-term Wandoo field production rate at between 6,000 and 8,000
bbls/d.
-
Concluded a five-well drilling program in the Champotran field in France
in the second quarter. Four of the wells were infill wells and the
fifth well was an approximately two-kilometer step-out well to test
southern extension of the field. All five of the wells were
successful, with the four infill wells completed in June and the
extension well completed in July. All five wells currently have
per-well production rates in excess of 300 bbls/d at low water cuts.
In aggregate, current production from the wells is approximately 1,800
bbls/d at a 4% water cut.
-
Generated fund flows from operations of $174.6 million ($1.73 per share)
in the second quarter of 2013, as compared to $163.6 million ($1.65 per
share) in the first quarter of 2013 and $127.8 million ($1.30 per
share) in the second quarter of 2012. Fund flows from operations for
the second quarter of 2013 increased 7% on a quarter-over-quarter basis
and 37% on a year-over-year basis.
-
We continue to benefit from strong pricing driven by our significant
exposure to Brent-based crude oil, WTI-based crude oil and European
gas. Vermilion's Brent-based crude production, representing 41% of
total production, averaged $105.25 per bbl in the quarter. WTI crude,
representing 25% of our production, averaged $94.22 per bbl.
Vermilion's natural gas production in the Netherlands, representing
approximately 15% of production, received an average price of $10.82
per mcf during the second quarter of 2013, a premium of $7.29 per mcf
as compared to AECO.
-
Increased our significant position in the Duvernay liquids-rich natural
gas resource play with the acquisition of an additional 46 sections
since the first quarter, bringing our total land position to 318 net
sections. This land position, which spans the breadth of the
liquids-rich natural gas fairway in two largely-contiguous blocks, was
assembled for approximately $76 million dollars ($375 per acre). We
currently anticipate drilling our first horizontal Duvernay well prior
to year-end 2013, with completion planned for early 2014.
-
In Ireland, tunneling, onshore pipelining, offshore umbilical-laying,
and offshore seismic acquisition activities for our Corrib project
continued during the second quarter. Based on our deterministic
schedule for remaining construction and commissioning activities, first
gas production is anticipated to occur between the end of 2014 and
early 2015.
-
In June 2013, Vermilion's syndicate of lenders agreed to increase the
Company's 3-year revolving borrowing base from $950 million to $1.2
billion. At the end of the second quarter, Vermilion had available
capacity under the borrowing base of $591 million and a net debt to
annualized second quarter fund flows from operations ratio of 0.97
times.
Conference Call and Audio Webcast Details
Vermilion will discuss these results in a conference call to be held on
Thursday, August 1, 2013 at 9:00 AM MST (11:00 AM EST). To
participate, you may call 1-888-231-8191 (Canada and US Toll Free) or
1-647-427-7450 (International and Toronto Area). The conference call
will also be available on replay by calling 1-855-859-2056 using
conference ID number 78595598. The replay will be available until
midnight eastern time on August 8, 2013.
You may also listen to the audio webcast by clicking http://event.on24.com/r.htm?e=626589&s=1&k=1A994A34B44915C6630ABBE2027B8AD9 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.
ABBREVIATIONS
bbl(s)
|
|
barrel(s)
|
mbbls
|
|
thousand barrels
|
bbls/d
|
|
barrels per day
|
mcf
|
|
thousand cubic feet
|
mmcf
|
|
million cubic feet
|
bcf
|
|
billion cubic feet
|
mcf/d
|
|
thousand cubic feet per day
|
mmcf/d
|
|
million cubic feet per day
|
GJ
|
|
gigajoules
|
MWh
|
|
megawatt hour
|
boe
|
|
barrel of oil equivalent, including: crude oil, natural gas liquids and
natural gas (converted on the basis of one boe for six mcf of natural
gas)
|
mboe
|
|
thousand barrel of oil equivalent
|
mmboe
|
|
million barrel of oil equivalent
|
boe/d
|
|
barrel of oil equivalent per day
|
NGLs
|
|
natural gas liquids
|
WTI
|
|
West Texas Intermediate, the reference price paid for crude oil of
standard grade in U.S. dollars at Cushing, Oklahoma
|
AECO
|
|
the daily average benchmark price for natural gas at the AECO 'C' hub in
southeast Alberta
|
TTF
|
|
the price for natural gas in the Netherlands, quoted in MWh of natural
gas per hour per day, at the Title Transfer Facility Virtual Trading
Point operated by Dutch TSO Gas Transport Services
|
$M
|
|
thousand dollars
|
$MM
|
|
million dollars
|
PRRT
|
|
Petroleum Resource Rent Tax, a profit based tax levied on petroleum
projects in Australia
|
DISCLAIMER
Certain statements included or incorporated by reference in this
document may constitute forward looking statements or financial
outlooks under applicable securities legislation. Such forward looking
statements or information typically contain statements with words such
as "anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", or similar words suggesting future outcomes or statements
regarding an outlook. Forward looking statements or information in
this document may include, but are not limited to:
-
capital expenditures;
-
business strategies and objectives;
-
reserve quantities and the discounted present value of future net cash
flows from such reserves;
-
petroleum and natural gas sales;
-
future production levels (including the timing thereof) and rates of
average annual production growth;
-
exploration and development plans;
-
acquisition and disposition plans and the timing thereof;
-
operating and other expenses, including the payment of future dividends;
-
royalty and income tax rates;
-
the timing of regulatory proceedings and approvals; and
-
the timing of first commercial natural gas; and the estimate of
Vermilion's share of the expected natural gas production from the
Corrib field.
Such forward looking statements or information are based on a number of
assumptions all or any of which may prove to be incorrect. In addition
to any other assumptions identified in this document, assumptions have
been made regarding, among other things:
-
the ability of Vermilion to obtain equipment, services and supplies in a
timely manner to carry out its activities in Canada and
internationally;
-
the ability of Vermilion to market crude oil, natural gas liquids and
natural gas successfully to current and new customers;
-
the timing and costs of pipeline and storage facility construction and
expansion and the ability to secure adequate product transportation;
-
the timely receipt of required regulatory approvals;
-
the ability of Vermilion to obtain financing on acceptable terms;
-
foreign currency exchange rates and interest rates;
-
future crude oil, natural gas liquids and natural gas prices; and
-
Management's expectations relating to the timing and results of
exploration and development activities.
Although Vermilion believes that the expectations reflected in such
forward looking statements or information are reasonable, undue
reliance should not be placed on forward looking statements because
Vermilion can give no assurance that such expectations will prove to be
correct. Financial outlooks are provided for the purpose of
understanding Vermilion's financial strength and business objectives
and the information may not be appropriate for other purposes. Forward
looking statements or information are based on current expectations,
estimates and projections that involve a number of risks and
uncertainties which could cause actual results to differ materially
from those anticipated by Vermilion and described in the forward
looking statements or information. These risks and uncertainties
include but are not limited to:
-
the ability of management to execute its business plan;
-
the risks of the oil and gas industry, both domestically and
internationally, such as operational risks in exploring for, developing
and producing crude oil, natural gas liquids and natural gas;
-
risks and uncertainties involving geology of crude oil, natural gas
liquids and natural gas deposits;
-
risks inherent in Vermilion's marketing operations, including credit
risk;
-
the uncertainty of reserves estimates and reserves life;
-
the uncertainty of estimates and projections relating to production and
associated expenditures;
-
potential delays or changes in plans with respect to exploration or
development projects
-
Vermilion's ability to enter into or renew leases on acceptable terms;
-
fluctuations in crude oil, natural gas liquids and natural gas prices,
foreign currency exchange rates and interest rates;
-
health, safety and environmental risks;
-
uncertainties as to the availability and cost of financing;
-
the ability of Vermilion to add production and reserves through
exploration and development activities;
-
the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld;
-
uncertainty in amounts and timing of royalty payments;
-
risks associated with existing and potential future law suits and
regulatory actions against Vermilion; and
-
other risks and uncertainties described elsewhere in this document or in
Vermilion's other filings with Canadian securities regulatory
authorities.
The forward looking statements or information contained in this document
are made as of the date hereof and Vermilion undertakes no obligation
to update publicly or revise any forward looking statements or
information, whether as a result of new information, future events or
otherwise, unless required by applicable securities laws.
In accordance with National Instruments 51-101, natural gas volumes have
been converted on the basis of six thousand cubic feet of natural gas
to one barrel of oil equivalent. Barrels of oil equivalent (boe) may
be misleading, particularly if used in isolation. A boe conversion
ratio of six thousand cubic feet to one barrel of oil is based on an
energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
Financial data contained within this document are reported in Canadian
dollars, unless otherwise stated.
HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
($M except as indicated)
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
Financial
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Petroleum and natural gas sales
|
|
|
311,966
|
|
|
309,576
|
|
|
246,544
|
|
|
621,542
|
|
|
557,032
|
Fund flows from operations 1
|
|
|
174,592
|
|
|
163,629
|
|
|
127,775
|
|
|
338,221
|
|
|
278,897
|
|
Fund flows from operations ($/basic share)
|
|
|
1.73
|
|
|
1.65
|
|
|
1.30
|
|
|
3.38
|
|
|
2.87
|
|
Fund flows from operations ($/diluted share)
|
|
|
1.71
|
|
|
1.61
|
|
|
1.28
|
|
|
3.33
|
|
|
2.82
|
Net earnings
|
|
|
106,198
|
|
|
52,137
|
|
|
37,816
|
|
|
158,335
|
|
|
102,910
|
|
Net earnings per share ($/basic share)
|
|
|
1.05
|
|
|
0.53
|
|
|
0.39
|
|
|
1.58
|
|
|
1.06
|
Capital expenditures
|
|
|
78,118
|
|
|
180,469
|
|
|
94,888
|
|
|
258,587
|
|
|
189,248
|
Acquisitions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,184
|
Asset retirement obligations settled
|
|
|
2,370
|
|
|
1,388
|
|
|
2,581
|
|
|
3,758
|
|
|
3,347
|
Cash dividends ($/share)
|
|
|
0.60
|
|
|
0.60
|
|
|
0.57
|
|
|
1.20
|
|
|
1.14
|
Dividends declared
|
|
|
60,776
|
|
|
59,612
|
|
|
55,962
|
|
|
120,388
|
|
|
111,086
|
Net dividends 1
|
|
|
42,146
|
|
|
44,080
|
|
|
37,181
|
|
|
86,226
|
|
|
74,747
|
|
% of fund flows from operations, gross
|
|
|
35%
|
|
|
36%
|
|
|
44%
|
|
|
36%
|
|
|
40%
|
|
% of fund flows from operations, net
|
|
|
24%
|
|
|
27%
|
|
|
29%
|
|
|
25%
|
|
|
27%
|
Total net dividends, capital expenditures and asset retirement
obligations
|
|
|
122,634
|
|
|
225,937
|
|
|
134,650
|
|
|
348,571
|
|
|
267,342
|
|
% of fund flows from operations
|
|
|
70%
|
|
|
138%
|
|
|
105%
|
|
|
103%
|
|
|
96%
|
|
% of fund flows from operations (excluding the Corrib project)
|
|
|
55%
|
|
|
127%
|
|
|
93%
|
|
|
90%
|
|
|
86%
|
Net debt 1
|
|
|
674,368
|
|
|
744,762
|
|
|
524,610
|
|
|
674,368
|
|
|
524,610
|
Operational
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/d)
|
|
|
26,638
|
|
|
23,583
|
|
|
24,658
|
|
|
25,119
|
|
|
24,576
|
|
NGLs (bbls/d)
|
|
|
1,775
|
|
|
1,431
|
|
|
1,405
|
|
|
1,604
|
|
|
1,389
|
|
Natural gas (mmcf/d)
|
|
|
86.40
|
|
|
82.16
|
|
|
78.63
|
|
|
84.29
|
|
|
79.51
|
|
Total (boe/d)
|
|
|
42,813
|
|
|
38,707
|
|
|
39,168
|
|
|
40,772
|
|
|
39,217
|
Average realized prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and NGLs ($/bbl)
|
|
|
98.95
|
|
|
103.98
|
|
|
100.07
|
|
|
101.42
|
|
|
103.17
|
|
Natural gas ($/mcf)
|
|
|
7.22
|
|
|
6.77
|
|
|
5.79
|
|
|
7.00
|
|
|
5.78
|
Production mix (% of production)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% priced with reference to WTI
|
|
|
25%
|
|
|
24%
|
|
|
23%
|
|
|
24%
|
|
|
23%
|
|
% priced with reference to AECO
|
|
|
17%
|
|
|
18%
|
|
|
18%
|
|
|
18%
|
|
|
18%
|
|
% priced with reference to European gas
|
|
|
17%
|
|
|
18%
|
|
|
16%
|
|
|
17%
|
|
|
16%
|
|
% priced with reference to Dated Brent
|
|
|
41%
|
|
|
40%
|
|
|
43%
|
|
|
41%
|
|
|
43%
|
Netbacks ($/boe) 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating netback
|
|
|
59.30
|
|
|
59.18
|
|
|
53.88
|
|
|
59.24
|
|
|
54.79
|
|
Fund flows netback
|
|
|
44.90
|
|
|
43.89
|
|
|
39.40
|
|
|
44.40
|
|
|
39.85
|
|
Operating expenses
|
|
|
12.36
|
|
|
14.10
|
|
|
12.41
|
|
|
13.21
|
|
|
12.54
|
Average reference prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI (US $/bbl)
|
|
|
94.22
|
|
|
94.37
|
|
|
93.49
|
|
|
94.30
|
|
|
98.21
|
|
Edmonton Sweet index (US $/bbl)
|
|
|
90.56
|
|
|
87.42
|
|
|
83.29
|
|
|
88.99
|
|
|
87.86
|
|
Dated Brent (US $/bbl)
|
|
|
102.44
|
|
|
112.55
|
|
|
108.19
|
|
|
107.50
|
|
|
113.34
|
|
AECO ($/GJ)
|
|
|
3.35
|
|
|
3.03
|
|
|
1.80
|
|
|
3.19
|
|
|
1.92
|
|
Netherlands gas price ($/GJ)
|
|
|
10.14
|
|
|
10.40
|
|
|
9.45
|
|
|
10.23
|
|
|
9.50
|
Share information ('000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding - basic
|
|
|
101,418
|
|
|
99,462
|
|
|
98,330
|
|
|
101,418
|
|
|
98,330
|
Shares outstanding - diluted 1
|
|
|
103,735
|
|
|
102,380
|
|
|
101,249
|
|
|
103,735
|
|
|
101,249
|
Weighted average shares outstanding - basic
|
|
|
100,964
|
|
|
99,301
|
|
|
97,937
|
|
|
100,137
|
|
|
97,291
|
Weighted average shares outstanding - diluted
|
|
|
102,223
|
|
|
101,349
|
|
|
99,923
|
|
|
101,578
|
|
|
99,000
|
1
|
The above table includes non-GAAP measures which may not be comparable
to other companies. Please see the "Non-GAAP
Measures" section of Management's Discussion and Analysis.
|
OPERATIONAL REVIEW AND OUTLOOK
Vermilion's strong performance during the second quarter illustrates our
consistent operational execution and the advantages of our global
diversification strategy. Thus far in 2013, we have achieved growth
across all four of our operating regions resulting in record
consolidated three and six-month production volumes of 42,813 and
40,772 boe/d, respectively.
Our diversified product mix continues to afford a significant
competitive advantage. In the second quarter, 66% of production volumes
were Brent and WTI-based crude oil and liquids and 17% was high-netback
European gas. Our Brent-based crude (41% of production) continues to
receive a premium to the Dated Brent index, resulting in an average
realized price of $105.25 per barrel for the second quarter. In
addition, our Netherlands natural gas production received an average
price of $10.82 per mcf, a premium of $7.29 per mcf compared to an
average second quarter price of $3.53 per mcf for AECO natural gas in
Canada. Our consistent production growth and increasing exposure to
liquids and European gas enabled fund flows from operations to grow 7%
quarter-over-quarter and 37% year-over-year.
The majority of our Canadian development activities continued to be
focused on the development of our Cardium light oil play. Well
performance continues to outpace that of our peers in the area,
demonstrating the quality of our land position in the West Pembina
region. Since entering the play in 2009, we have drilled 202 gross
wells (141 net) in the Cardium and increased production to over 9,500
boe/d. We continue to optimize completion technology and well designs,
and remain one of few companies in our producing area to employ long
reach wells (greater than one mile in length). After demonstrating
production improvement and a significant reduction in per-section costs
by drilling long-reach 1.5-mile horizontal wells, we are now planning
on drilling a higher percentage of 1.5-mile wells and several 2.0-mile
pilot wells over the remainder of 2013. The optimization of frac design
and fluids, multi-well pads and drilling longer horizontal wells has
enabled us to reduce well costs from more than $5 million per section
at the outset of development in 2009 to approximately $3 million per
section in the second quarter of 2013. Furthermore, in pursuit of
ongoing well cost reduction and enhanced environmental stewardship, we
are testing several alternative processes for the recycling of frac
flowback water. We also initiated a water injection pilot to test
applicability of water-flooding to this reservoir. We anticipate our
Cardium drilling inventory will last five to six years at a drilling
rate of 40 to 60 wells per year. Our per unit operating costs remain
less than $6 per boe for our operated production, resulting in strong
operating netbacks of approximately $65 per boe during the second
quarter.
In addition to the Cardium, we have also identified a significant
inventory of Mannville condensate-rich natural gas targets in the
Drayton Valley area. During 2013, our plans are to drill a total of six
gross (3.2 net) Mannville wells targeting the Ellerslie formation.
During the second quarter, we drilled and completed our third Ellerslie
well and brought on production from our second well, which was drilled
and completed during the first quarter. In its fourth month of
production, the first well is producing at a rate of approximately 3.5
mmcf/d of sales gas with 496 barrels per day condensate and natural gas
liquids (79% condensate). In its third month of production, the second
well is producing at approximately 4.5 mmcf/d of sales gas with 322
barrels per day of natural gas liquids (70% condensate). The third
well was brought on production in July and has averaged approximately
1.3 mmcf/d of sales gas with 466 barrels per day of associated natural
gas liquids (77% condensate) at an average flowing tubing pressure of
1,125 pounds per square inch during the first two weeks of production.
We continue to expand our position in the Duvernay liquids-rich natural
gas resource play with an additional 36.6 net sections acquired in the
second quarter and nine net sections acquired subsequent to quarter
end. In total, we have amassed 318 net sections in the Edson and
Drayton Valley areas spanning the breadth of the liquids-rich natural
gas fairway, at a cost of approximately $76 million ($375 per acre).
To date, we have drilled three vertical stratigraphic test wells and
plan to drill our first horizontal well late in 2013, with completion
to occur in 2014. Our Duvernay rights generally underlie our Cardium
and Mannville liquids-rich gas positions, allowing for potential
infrastructure, operational and timing advantages should full field
development of the Duvernay be pursued. Combined, our Cardium,
Mannville and Duvernay positions provide us with exploration and
development opportunities in our core Canadian operating region that
have the potential to deliver strong production and reserve growth into
the latter half of the decade.
Our Australian activities during the first half of 2013 were focused on
completion of the drilling program at Wandoo. We drilled two sidetracks
off existing wells, including the longest horizontal section yet
drilled at Wandoo to-date of 3,400 metres. The 2013 drilling program
has been our most successful effort yet in Australia. Both sidetracks
were brought on production at restricted rates in April, demonstrating
productive capacities in excess of 6,000 bbls/d and 3,000 bbls/d,
respectively. To meet current marketing agreements and provide
long-term certainty to our customers, our current plan is to maintain
production levels within our prior guidance of between 6,000 bbls/d and
8,000 bbls/d. We anticipate maintaining these production levels in
Australia for the foreseeable future with drilling programs
approximately every two years. Wandoo oil garners a premium to the
Dated Brent index and incurs no transportation cost as production is
sold directly from the platform, leading to very high netbacks.
During the second quarter, we concluded an initial four-well infill
drilling program in the Champotran field in France. The program was
subsequently expanded to five wells to drill a two-kilometer step-out
well to the south of the existing field. All five of the wells were
successful, with the four infill wells completed in June and the
extension well completed in July. All five wells currently have
per-well production rates in excess of 300 bbls/d at low water cuts.
In aggregate, current production from the wells is approximately 1,800
bbls/d at a 4% water cut. Additional activities in France included
workovers, recompletions and facilities upgrades in both the Paris and
Aquitaine Basins. In 2012, we completed two acquisitions that were
natural additions to our asset base in France and further secured our
position as the leading oil producer in the country. We continue to
integrate these assets and to identify further opportunities to
increase production through seismic data acquisition, workovers,
optimized water-flood management and development drilling. Our French
business is now an organic growth asset, featuring low base decline
rates, high netbacks from Brent-indexed production, strong cash flow
generation and high capital efficiencies on development projects. We
are increasing our France-based technical staffing to identify and
execute additional investment opportunities in these large, complex,
conventional light oil fields in both the Paris and Aquitaine Basins.
We continued permitting and drilling preparations in the Netherlands for
a three-well drilling campaign in the second half of 2013. Our Garijp
debottlenecking project was completed in the first quarter of 2013,
enabling incremental production from two wells previously drilled at
Vinkega. Surface facilities for the multi-zone Langezwaag-1 well (42%
working interest) were completed and commissioned mid-way through the
second quarter. Langezwaag-1 is currently producing from the Vlieland
zone at an average rate of 3.0 mmcf/d, net to Vermilion. We intend to
increase activity in the Netherlands each year to maintain a rolling
inventory of projects so that each year's capital program will involve
a combination of drilling new wells and the tie-in of previous
successes. In March, we were awarded an exploration license for the
Akkrum concession, located directly between our existing Gorredijk and
Leeuwarden concessions. Covering more than 54,000 acres, the Akkrum
concession adds to our significant land position and future potential
prospects in the Netherlands. Over the last year, we have more than
doubled our undeveloped acreage position in the Netherlands to more
than 435,000 net acres. Like our French Business Unit, we now consider
our Netherlands Business Unit to be an organic growth business, and we
are increasing our technical staffing in the Netherlands to turn our
substantial inventory of prospect leads into drillable projects.
In Ireland, tunneling activities related to the completion of the nine
kilometer onshore pipeline for Corrib commenced in December, 2012.
Various other onshore and offshore activities have progressed as well
over the first half of 2012, including umbilical lays to the offshore
wells, onshore pipelining in segments that are not within the tunnel,
construction of the tunnel boring machine reception site and gas plant
pre-commissioning. Tunneling, construction, commissioning and start-up
activities are anticipated to take approximately 18 months to complete,
with first gas anticipated between the end of 2014 and early 2015. Peak
production is expected to be reached in mid-2015, with peak production
levels of approximately 55 mmcf/d (9,000 boe/d), net to Vermilion.
With respect to current well and facility deliverability, we are not
currently producing at full capacity in our Australia and Netherlands
business units. Our conservative approach to utilizing available well
deliverability is supported by several considerations. In general, we
seek to maximize capital efficiency, which means that in some cases, we
do not install facility capacity and well equipment to maximize initial
production rates. In other cases, there are technical or commercial
drivers, such as reservoir management or long-term product marketing
considerations, that lead us to hold production levels below available
deliverability. Moreover, our capital markets model is based on
low-risk, ratable organic growth along with income to our
shareholders. We believe that our conservative approach to production
management reduces the risk of execution of our growth and income model
in future time periods.
Our objective remains to produce ratable annual growth at the
consolidated company level of approximately 5% to 7% per year, before
consideration of Corrib's future impact. With Corrib's anticipated
contribution to our production and cash flow streams, we continue to
target overall growth of approximately 30% to 50,000 boe/d from 2012 to
2015, and fund flows from operations growth of approximately 40% over
the same period. Near term growth and cash flow are expected to be
driven by continued Cardium and Mannville development in Canada, oil
development activities in France, and high-netback natural gas drilling
in the Netherlands. A significant increment of production growth and
free cash flow growth is expected from Corrib between the end of 2014
and early 2015, with full production achieved during 2015. Our
Australian Business Unit is expected to provide steady production as
well as significant free cash flow.
We increased our monthly dividend by 5.3% in the first quarter of 2013,
from $0.19 to $0.20 per share. The increase became effective for the
January 2013 dividend paid February 15, 2013. With the increasing
certainty for Corrib development timing and the anticipated strength of
future cash flows from all of our worldwide businesses, we are
committed and believe we are well positioned to provide 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, we believe the secondary listing will assist in
broadening our investor base and increase trading liquidity.
Vermilion's conservative fiscal management and capital discipline leaves
us well positioned to execute our growth-and-income model and provide
growth to investors on a per share basis. The management and directors
of Vermilion continue to hold approximately 8% of the outstanding
shares and remain committed to delivering superior rewards to all
stakeholders. Continuing to be acknowledged for excellence in our
business practices, Vermilion was recognized for the fourth consecutive
year by the Great Place to Work® Institute in both Canada and France.
Vermilion ranked as the 22nd Best Workplace in Canada among more than
315 companies. Our French unit ranked as the 27th Best Workplace in the
country.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated
July 31, 2013, of Vermilion Energy Inc.'s ("Vermilion" or the
"Company") operating and financial results as at and for the three and
six months ended June 30, 2013 as compared with the corresponding
periods in the prior year.
This discussion should be read in conjunction with the unaudited
condensed consolidated interim financial statements for the three and
six months ended June 30, 2013 and the audited consolidated financial
statements for the year ended December 31, 2012 and 2011, together with
accompanying notes. Additional information relating to Vermilion,
including its Annual Information Form, is available on SEDAR at www.sedar.com or on Vermilion's website at www.vermilionenergy.com.
The unaudited condensed consolidated interim financial statements for
the three and six months ended June 30, 2013 and comparative
information have been prepared in Canadian dollars, except where
another currency has been indicated, and in accordance with IAS 34,
"Interim financial reporting", as issued by the International
Accounting Standards Board.
NON-GAAP MEASURES
This report includes non-GAAP measures as further described herein.
These non-GAAP measures do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS" or, alternatively,
"GAAP") and therefore may not be comparable with the calculations of
similar measures for other entities.
"Fund flows from operations" represents cash flows from operating activities before changes in
non-cash operating working capital and asset retirement obligations
settled. Management considers fund flows from operations and fund
flows from operations per share to be key measures as they demonstrate
Vermilion's ability to generate the cash necessary to pay dividends,
repay debt, fund asset retirement obligations and make capital
investments. Management believes that by excluding the temporary
impact of changes in non-cash operating working capital, fund flows
from operations provides a useful measure of Vermilion's ability to
generate cash that is not subject to short-term movements in non-cash
operating working capital.
"Fund flows from operations (excluding the Corrib project)" represents fund flows from operations excluding expenses related to the
Corrib project. Management believes that by excluding expenses related
to the Corrib project, fund flows from operations (excluding the Corrib
project) provides a useful measure of Vermilion's ability to generate
cash from its current producing assets.
The most directly comparable GAAP measure to fund flows from operations
and fund flows from operations (excluding the Corrib project) is cash
flows from operating activities.
Cash flows from operating activities as presented in Vermilion's
consolidated statements of cash flows are reconciled to fund flows from
operations and fund flows from operations (excluding the Corrib
project) as follows:
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Cash flows from operating activities
|
|
|
|
179,074
|
|
|
190,712
|
|
|
123,485
|
|
|
369,786
|
|
|
248,372
|
Changes in non-cash operating working capital
|
|
|
|
(6,852)
|
|
|
(28,471)
|
|
|
1,709
|
|
|
(35,323)
|
|
|
27,178
|
Asset retirement obligations settled
|
|
|
|
2,370
|
|
|
1,388
|
|
|
2,581
|
|
|
3,758
|
|
|
3,347
|
Fund flows from operations
|
|
|
|
174,592
|
|
|
163,629
|
|
|
127,775
|
|
|
338,221
|
|
|
278,897
|
Expenses related to the Corrib project
|
|
|
|
2,036
|
|
|
1,855
|
|
|
2,344
|
|
|
3,891
|
|
|
4,708
|
Fund flows from operations (excluding the Corrib project)
|
|
|
|
176,628
|
|
|
165,484
|
|
|
130,119
|
|
|
342,112
|
|
|
283,605
|
"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
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Dividends declared
|
|
|
|
60,776
|
|
|
59,612
|
|
|
55,962
|
|
|
120,388
|
|
|
111,086
|
Issuance of shares pursuant to the dividend reinvestment plan
|
|
|
|
(18,630)
|
|
|
(15,532)
|
|
|
(18,781)
|
|
|
(34,162)
|
|
|
(36,339)
|
Net dividends
|
|
|
|
42,146
|
|
|
44,080
|
|
|
37,181
|
|
|
86,226
|
|
|
74,747
|
Drilling and development
|
|
|
|
75,005
|
|
|
179,520
|
|
|
77,956
|
|
|
254,525
|
|
|
165,852
|
Dispositions
|
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
Exploration and evaluation
|
|
|
|
3,113
|
|
|
9,576
|
|
|
16,932
|
|
|
12,689
|
|
|
23,396
|
Asset retirement obligations settled
|
|
|
|
2,370
|
|
|
1,388
|
|
|
2,581
|
|
|
3,758
|
|
|
3,347
|
Total net dividends, capital expenditures and asset retirement
obligations settled
|
|
|
|
122,634
|
|
|
225,937
|
|
|
134,650
|
|
|
348,571
|
|
|
267,342
|
Capital expenditures and asset retirement obligations settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related to the Corrib project
|
|
|
|
(24,878)
|
|
|
(16,520)
|
|
|
(13,928)
|
|
|
(41,398)
|
|
|
(23,410)
|
Total net dividends, capital expenditures and asset retirement
obligations settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding the Corrib project)
|
|
|
|
97,756
|
|
|
209,417
|
|
|
120,722
|
|
|
307,173
|
|
|
243,932
|
"Net debt" is the sum of long-term debt and working capital as presented in
Vermilion's consolidated balance sheets. Net debt is used by
management to analyze the financial position and leverage of
Vermilion. The most directly comparable GAAP measure is long-term
debt.
Long-term debt as presented in Vermilion's consolidated balance sheets
is reconciled to net debt as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As At
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Dec 31,
|
($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780,470
|
|
|
642,022
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,912
|
|
|
355,711
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432,014)
|
|
|
(320,502)
|
Net debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
674,368
|
|
|
677,231
|
"Netbacks" are per boe and per mcf measures used in the analysis of operational
activities and are used by management as a basis for decisions on
capital allocation.
"Diluted shares outstanding" is the sum of shares outstanding at the period-end plus outstanding
awards under Vermilion's equity based compensation plan, based on
current estimates of future performance factors and forfeitures. The
most directly comparable GAAP measure is shares outstanding.
Shares outstanding is reconciled to diluted shares outstanding as
follows:
|
|
|
|
As At
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
('000s of shares)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
Shares outstanding
|
|
|
|
101,418
|
|
|
99,462
|
|
|
98,330
|
Potential shares issuable pursuant to the equity based compensation plan
|
|
|
|
2,317
|
|
|
2,918
|
|
|
2,919
|
Diluted shares outstanding
|
|
|
|
103,735
|
|
|
102,380
|
|
|
101,249
|
OPERATIONAL ACTIVITIES
Canada
Vermilion drilled three (1.9 net) wells during the second quarter of
2013. In the Cardium, Vermilion drilled one (1.0 net) horizontal well
and brought twelve gross operated and two non-operated wells on
production during the quarter. In the Mannville, Vermilion drilled two
(0.9 net) wells and brought one well on production. Drilling and
completion activities were lower than in the first quarter of 2013 as a
result of some activities being deferred until the summer months
following spring break-up.
France
Vermilion completed its five-well Champotran drilling program during the
second quarter of 2013. The Company also completed a number of
workovers in both the Paris and Aquitaine Basins. Late in the quarter,
Vermilion commenced 3D seismic and subsurface studies in the Vic Bilh
region that will continue into the latter half of the year.
Netherlands
Operating activities in the second quarter focused on facility
maintenance and site construction. Vinkega-2 surface facilities were
commissioned for first gas in late June, and Langezwaag-1 surface
facilities were commissioned for first gas in mid-May. Vermilion is
currently planning and preparing for a three well drilling program in
the Netherlands during the second half of 2013.
Australia
Australian activity in the second quarter focused on completion of a
two-well drilling program and demobilization of the rig. Other
activities included minor facility maintenance and repairs.
PRODUCTION
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d)
|
|
|
|
10,610
|
|
|
9,301
|
|
|
9,078
|
|
14%
|
|
|
17%
|
|
|
9,959
|
|
|
8,977
|
|
11%
|
|
Natural gas (mmcf/d)
|
|
|
|
43.69
|
|
|
41.04
|
|
|
41.32
|
|
6%
|
|
|
6%
|
|
|
42.37
|
|
|
41.58
|
|
2%
|
|
Total (boe/d)
|
|
|
|
17,892
|
|
|
16,140
|
|
|
15,965
|
|
11%
|
|
|
12%
|
|
|
17,021
|
|
|
15,906
|
|
7%
|
|
% of consolidated
|
|
|
|
42%
|
|
|
41%
|
|
|
40%
|
|
|
|
|
|
|
|
41%
|
|
|
41%
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/d)
|
|
|
|
10,390
|
|
|
10,330
|
|
|
9,931
|
|
1%
|
|
|
5%
|
|
|
10,360
|
|
|
10,101
|
|
3%
|
|
Natural gas (mmcf/d)
|
|
|
|
4.19
|
|
|
4.21
|
|
|
3.57
|
|
-
|
|
|
17%
|
|
|
4.20
|
|
|
3.53
|
|
19%
|
|
Total (boe/d)
|
|
|
|
11,088
|
|
|
11,032
|
|
|
10,526
|
|
1%
|
|
|
5%
|
|
|
11,060
|
|
|
10,689
|
|
3%
|
|
% of consolidated
|
|
|
|
26%
|
|
|
29%
|
|
|
27%
|
|
|
|
|
|
|
|
27%
|
|
|
27%
|
|
|
Netherlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (bbls/d)
|
|
|
|
50
|
|
|
96
|
|
|
84
|
|
(48%)
|
|
|
(40%)
|
|
|
73
|
|
|
78
|
|
(6%)
|
|
Natural gas (mmcf/d)
|
|
|
|
38.52
|
|
|
36.91
|
|
|
33.74
|
|
4%
|
|
|
14%
|
|
|
37.72
|
|
|
34.41
|
|
10%
|
|
Total (boe/d)
|
|
|
|
6,470
|
|
|
6,248
|
|
|
5,707
|
|
4%
|
|
|
13%
|
|
|
6,360
|
|
|
5,813
|
|
9%
|
|
% of consolidated
|
|
|
|
15%
|
|
|
16%
|
|
|
15%
|
|
|
|
|
|
|
|
16%
|
|
|
15%
|
|
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/d)
|
|
|
|
7,363
|
|
|
5,287
|
|
|
6,970
|
|
39%
|
|
|
6%
|
|
|
6,331
|
|
|
6,809
|
|
(7%)
|
|
% of consolidated
|
|
|
|
17%
|
|
|
14%
|
|
|
18%
|
|
|
|
|
|
|
|
16%
|
|
|
17%
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d)
|
|
|
|
28,413
|
|
|
25,014
|
|
|
26,063
|
|
14%
|
|
|
9%
|
|
|
26,723
|
|
|
25,965
|
|
3%
|
|
% of consolidated
|
|
|
|
66%
|
|
|
65%
|
|
|
67%
|
|
|
|
|
|
|
|
66%
|
|
|
66%
|
|
|
|
Natural gas (mmcf/d)
|
|
|
|
86.40
|
|
|
82.16
|
|
|
78.63
|
|
5%
|
|
|
10%
|
|
|
84.29
|
|
|
79.51
|
|
6%
|
|
% of consolidated
|
|
|
|
34%
|
|
|
35%
|
|
|
33%
|
|
|
|
|
|
|
|
34%
|
|
|
34%
|
|
|
|
Total (boe/d)
|
|
|
|
42,813
|
|
|
38,707
|
|
|
39,168
|
|
11%
|
|
|
9%
|
|
|
40,772
|
|
|
39,217
|
|
4%
|
Average total production in Canada of 17,892 boe/d during the second
quarter of 2013 represented an increase of 11% compared to 16,140 boe/d
in the first quarter of 2013, and 12% as compared to 15,965 boe/d in
the second quarter of the prior year. The increased volumes are largely
attributable to continued development in the Cardium. Mannville
development also contributed with two wells on production during the
second quarter. Vermilion's exposure to oil and liquids represented
approximately 59% of Canadian production in the second quarter of 2013
compared to 57% in the second quarter of 2012.
Production in France averaged 11,088 boe/d in the second quarter of
2013, essentially flat with production of 11,032 boe/d in the first
quarter of 2013. On a year-over-year basis, production has grown by 5%.
This increase is largely attributable to incremental production volumes
associated with Vermilion's acquisition completed in December 2012 and
continued workover and recompletion activities largely offsetting
natural declines. Production from the five-well drilling program
started to be brought on late in the second quarter. In France,
Vermilion remains predominantly weighted to Brent crude at
approximately 94% of production.
Average production volumes of 6,470 boe/d in the Netherlands during the
second quarter of 2013 represented an increase of 4%
quarter-over-quarter and 13% year-over-year. Production growth was
largely attributable to Vermilion completing debottlenecking activities
at Garijp, facilitating increased throughput of production from
Vinkega-1.
Australia production averaged 7,363 boe/d during the second quarter of
2013, an increase of 39% compared to 5,287 boe/d in the prior quarter,
and 6% compared to 6,970 boe/d in the second quarter of 2012.
Production volumes in the second quarter of 2013 reflect the strength
of the base production at Wandoo with growth attributable to
incremental production from the new wells which were brought on
production at restricted rates in April.
FINANCIAL REVIEW
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Net earnings
|
|
|
|
106,198
|
|
|
52,137
|
|
|
37,816
|
|
104%
|
|
|
181%
|
|
|
158,335
|
|
|
102,910
|
|
54%
|
Fund flows from operations
|
|
|
|
174,592
|
|
|
163,629
|
|
|
127,775
|
|
7%
|
|
|
37%
|
|
|
338,221
|
|
|
278,897
|
|
21%
|
Cash flow from operating activities
|
|
|
|
179,074
|
|
|
190,712
|
|
|
123,485
|
|
(6%)
|
|
|
45%
|
|
|
369,786
|
|
|
248,372
|
|
49%
|
Net debt
|
|
|
|
674,368
|
|
|
744,762
|
|
|
524,610
|
|
(9%)
|
|
|
29%
|
|
|
674,368
|
|
|
524,610
|
|
29%
|
Long-term debt
|
|
|
|
780,470
|
|
|
712,763
|
|
|
452,267
|
|
9%
|
|
|
73%
|
|
|
780,470
|
|
|
452,267
|
|
73%
|
Ratio of net debt to annualized fund flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from operations
|
|
|
|
1.0
|
|
|
1.1
|
|
|
1.0
|
|
(9%)
|
|
|
-
|
|
|
1.0
|
|
|
0.9
|
|
11%
|
Total net dividends, capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and asset retirement obligations settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of fund flows from operations
|
|
|
|
70%
|
|
|
138%
|
|
|
105%
|
|
|
|
|
|
|
|
103%
|
|
|
96%
|
|
|
% of fund flows from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding the Corrib project)
|
|
|
|
55%
|
|
|
127%
|
|
|
93%
|
|
|
|
|
|
|
|
90%
|
|
|
86%
|
|
|
Net earnings for the three and six months ended June 30, 2013 increased
as compared to first quarter of 2013 and the same periods in 2012 due
to the increases in operating income resulting from production growth
coupled with unrealized foreign exchange gains recorded in the current
periods. The unrealized foreign exchange gain of $25.5 million
recorded in 2013 primarily resulted from the impact of the appreciation
of the Euro against the Canadian dollar and the resultant impact on
Vermilion's financial balances.
Fund flows from operations for the second quarter of 2013 was 7% higher
($11.0 million) than the first quarter. This increase was driven by
record production, including growth across all of Vermilion's operating
regions. Fund flows from operations for the three and six months ended
June 30, 2013 was 37% and 21% higher, respectively, than the same
periods in 2012. The significant increases were largely the result of
year-over-year production growth, coupled with the absence of the large
build in inventory that occurred in 2012. On a year-to-date basis,
inventory decreased by 238,000 bbls in 2013 versus an increase of
137,000 bbls in 2012. While the Dated Brent reference price declined
by 5% from the 2012 periods, the impact of these declines were entirely
offset by increased realized prices for Vermilion's production in
Canada and the Netherlands.
Cash flow from operating activities for the second quarter of 2013
decreased as compared to the first quarter of the same year despite the
increased net earnings due to the impact of unfavorable timing
differences pertaining to working capital. Cash flow from operating
activities for the three and six months ended June 30, 2013 increased
as compared to the same periods in 2012 due to the aforementioned
increase in net earnings coupled with favorable timing differences
pertaining to working capital.
Long-term debt as at June 30, 2013 increased to $780.5 million from
$642.0 million as at December 31, 2012 as a result of increased
borrowings on the revolving credit facility to fund current year
development capital expenditures. As fund flows from operations
exceeded dividends paid, Vermilion ended the second quarter with net
debt of $674.4 million, a reduction from $744.8 million as at March 31,
2013 and $677.2 million as at December 31, 2012.
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 for the second quarter of
2013 decreased compared to both the first quarter of 2013 and the
second quarter of 2012. This decrease was primarily the result of the
aforementioned increase in fund flows from operations coupled with
reduced capital expenditures in the second quarter of 2013. The
decreases in capital expenditures were due to the absence of
expenditures relating to the Australia drilling campaign, which
primarily took place in the first quarter of 2013, and higher
expenditures during the second quarter of 2012 relating to Duvernay
land acquisitions in Canada.
COMMODITY PRICES
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Average reference prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI (US $/bbl)
|
|
|
|
94.22
|
|
|
94.37
|
|
|
93.49
|
|
-
|
|
|
1%
|
|
|
94.30
|
|
|
98.21
|
|
(4%)
|
Edmonton Sweet index (US $/bbl)
|
|
|
|
90.56
|
|
|
87.42
|
|
|
83.29
|
|
4%
|
|
|
9%
|
|
|
88.99
|
|
|
87.86
|
|
1%
|
Dated Brent (US $/bbl)
|
|
|
|
102.44
|
|
|
112.55
|
|
|
108.19
|
|
(9%)
|
|
|
(5%)
|
|
|
107.50
|
|
|
113.34
|
|
(5%)
|
AECO ($/GJ)
|
|
|
|
3.35
|
|
|
3.03
|
|
|
1.80
|
|
11%
|
|
|
86%
|
|
|
3.19
|
|
|
1.92
|
|
66%
|
Netherlands gas price ($/GJ)
|
|
|
|
10.14
|
|
|
10.40
|
|
|
9.45
|
|
(3%)
|
|
|
7%
|
|
|
10.23
|
|
|
9.50
|
|
8%
|
Netherlands gas price (€/GJ)
|
|
|
|
7.57
|
|
|
7.81
|
|
|
7.27
|
|
(3%)
|
|
|
4%
|
|
|
7.69
|
|
|
7.31
|
|
5%
|
Average realized prices ($/boe)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
62.00
|
|
|
57.61
|
|
|
51.58
|
|
8%
|
|
|
20%
|
|
|
59.93
|
|
|
53.70
|
|
12%
|
France
|
|
|
|
98.04
|
|
|
107.17
|
|
|
104.15
|
|
(9%)
|
|
|
(6%)
|
|
|
102.84
|
|
|
106.56
|
|
(3%)
|
Netherlands
|
|
|
|
65.08
|
|
|
61.21
|
|
|
57.88
|
|
6%
|
|
|
12%
|
|
|
63.19
|
|
|
58.49
|
|
8%
|
Australia
|
|
|
|
111.54
|
|
|
120.76
|
|
|
129.94
|
|
(8%)
|
|
|
(14%)
|
|
|
115.89
|
|
|
119.16
|
|
(3%)
|
Consolidated
|
|
|
|
80.21
|
|
|
83.04
|
|
|
76.04
|
|
(3%)
|
|
|
5%
|
|
|
81.60
|
|
|
79.57
|
|
3%
|
Production mix (% of production)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% priced with reference to WTI
|
|
|
|
25%
|
|
|
24%
|
|
|
23%
|
|
|
|
|
|
|
|
24%
|
|
|
23%
|
|
|
% priced with reference to AECO
|
|
|
|
17%
|
|
|
18%
|
|
|
18%
|
|
|
|
|
|
|
|
18%
|
|
|
18%
|
|
|
% priced with reference to European gas
|
|
|
|
17%
|
|
|
18%
|
|
|
16%
|
|
|
|
|
|
|
|
17%
|
|
|
16%
|
|
|
% priced with reference to Dated Brent
|
|
|
|
41%
|
|
|
40%
|
|
|
43%
|
|
|
|
|
|
|
|
41%
|
|
|
43%
|
|
|
Reference prices
During the second quarter of 2013, North American crude oil prices
remained relatively consistent with the preceding quarter while Dated
Brent crude oil prices decreased 9% quarter-over-quarter. Western
Canadian supply issues and increased rail capacity resulted in a
narrowing differential for both WTI and the Edmonton Sweet index versus
Dated Brent ($8.22 and $11.88 per bbl, respectively, for the second
quarter of 2013 as compared to $18.18 and $25.13 per bbl, respectively,
for the first quarter of 2013).
The AECO reference price for the second quarter of 2013 increased 11% as
compared to the first quarter of 2013 and is significantly higher when
compared to the same period in 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.
CAPITAL EXPENDITURES AND ACQUISITIONS
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
By classification
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Drilling and development
|
|
|
|
75,005
|
|
|
179,520
|
|
|
77,956
|
|
|
254,525
|
|
|
165,852
|
Dispositions
|
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
Exploration and evaluation
|
|
|
|
3,113
|
|
|
9,576
|
|
|
16,932
|
|
|
12,689
|
|
|
23,396
|
Capital expenditures
|
|
|
|
78,118
|
|
|
180,469
|
|
|
94,888
|
|
|
258,587
|
|
|
189,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,184
|
Acquisitions
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
By category
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Land
|
|
|
|
2,307
|
|
|
3,129
|
|
|
31,713
|
|
|
5,436
|
|
|
38,380
|
Seismic
|
|
|
|
5,569
|
|
|
3,813
|
|
|
1,327
|
|
|
9,382
|
|
|
2,126
|
Drilling and completion
|
|
|
|
20,235
|
|
|
126,185
|
|
|
28,309
|
|
|
146,420
|
|
|
83,167
|
Production equipment and facilities
|
|
|
|
40,819
|
|
|
49,942
|
|
|
26,718
|
|
|
90,761
|
|
|
51,473
|
Recompletions
|
|
|
|
4,510
|
|
|
4,131
|
|
|
1,403
|
|
|
8,641
|
|
|
4,048
|
Other
|
|
|
|
4,678
|
|
|
1,896
|
|
|
5,418
|
|
|
6,574
|
|
|
10,054
|
Dispositions
|
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
|
|
(8,627)
|
|
|
-
|
Capital expenditures
|
|
|
|
78,118
|
|
|
180,469
|
|
|
94,888
|
|
|
258,587
|
|
|
189,248
|
Acquisitions
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,184
|
Total capital expenditures and acquisitions
|
|
|
|
78,118
|
|
|
180,469
|
|
|
94,888
|
|
|
258,587
|
|
|
295,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
By country
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Canada
|
|
|
|
17,578
|
|
|
86,636
|
|
|
55,456
|
|
|
104,214
|
|
|
127,438
|
France
|
|
|
|
23,223
|
|
|
21,592
|
|
|
10,281
|
|
|
44,815
|
|
|
122,123
|
Netherlands
|
|
|
|
4,157
|
|
|
372
|
|
|
5,379
|
|
|
4,529
|
|
|
7,949
|
Australia
|
|
|
|
8,282
|
|
|
55,349
|
|
|
9,867
|
|
|
63,631
|
|
|
14,411
|
Ireland
|
|
|
|
24,878
|
|
|
16,520
|
|
|
13,905
|
|
|
41,398
|
|
|
23,511
|
Capital expenditures:
Capital expenditures for the second quarter of 2013 were significantly
lower than both the first quarter of 2013 and the second quarter of
2012. The decrease from the first quarter of 2013 was the result of
reduced drilling activity in both Canada and Australia. The decrease
from the second quarter of 2012 was the result of reduced land
purchases in Canada for the Duvernay play, partially offset by
increased drilling activity in France and tunnelling activity in
Ireland.
Capital expenditures for the six months ended June 30, 2013 was higher
than the same period in 2012 as a result of increased drilling activity
in France and Australia and tunnelling activity in Ireland. These
increases were partially offset by reduced land purchases in Canada for
the Duvernay play.
PETROLEUM AND NATURAL GAS SALES
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By product
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe and per mcf)
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Crude oil & NGLs
|
|
|
255,183
|
|
|
259,498
|
|
|
205,126
|
|
(2%)
|
|
|
24%
|
|
|
514,681
|
|
|
473,417
|
|
9%
|
Per boe
|
|
|
98.95
|
|
|
103.98
|
|
|
100.07
|
|
(5%)
|
|
|
(1%)
|
|
|
101.42
|
|
|
103.17
|
|
(2%)
|
Natural gas
|
|
|
56,783
|
|
|
50,078
|
|
|
41,418
|
|
13%
|
|
|
37%
|
|
|
106,861
|
|
|
83,615
|
|
28%
|
Per mcf
|
|
|
7.22
|
|
|
6.77
|
|
|
5.79
|
|
7%
|
|
|
25%
|
|
|
7.00
|
|
|
5.78
|
|
21%
|
Petroleum and natural gas sales
|
|
|
311,966
|
|
|
309,576
|
|
|
246,544
|
|
1%
|
|
|
27%
|
|
|
621,542
|
|
|
557,032
|
|
12%
|
Per boe
|
|
|
80.21
|
|
|
83.04
|
|
|
76.04
|
|
(3%)
|
|
|
5%
|
|
|
81.60
|
|
|
79.57
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By country
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
100,950
|
|
|
83,688
|
|
|
74,932
|
|
21%
|
|
|
35%
|
|
|
184,638
|
|
|
155,458
|
|
19%
|
Per boe
|
|
|
62.00
|
|
|
57.61
|
|
|
51.58
|
|
8%
|
|
|
20%
|
|
|
59.93
|
|
|
53.70
|
|
12%
|
France
|
|
|
100,418
|
|
|
121,566
|
|
|
94,828
|
|
(17%)
|
|
|
6%
|
|
|
221,984
|
|
|
198,339
|
|
12%
|
Per boe
|
|
|
98.04
|
|
|
107.17
|
|
|
104.15
|
|
(9%)
|
|
|
(6%)
|
|
|
102.84
|
|
|
106.56
|
|
(3%)
|
Netherlands
|
|
|
38,316
|
|
|
34,421
|
|
|
30,062
|
|
11%
|
|
|
27%
|
|
|
72,737
|
|
|
61,882
|
|
18%
|
Per boe
|
|
|
65.08
|
|
|
61.21
|
|
|
57.88
|
|
6%
|
|
|
12%
|
|
|
63.19
|
|
|
58.49
|
|
8%
|
Australia
|
|
|
72,282
|
|
|
69,901
|
|
|
46,722
|
|
3%
|
|
|
55%
|
|
|
142,183
|
|
|
141,353
|
|
1%
|
Per boe
|
|
|
111.54
|
|
|
120.76
|
|
|
129.94
|
|
(8%)
|
|
|
(14%)
|
|
|
115.89
|
|
|
119.16
|
|
(3%)
|
Vermilion's consolidated petroleum and natural gas sales for the second
quarter of 2013 was relatively consistent with the first quarter of
2013 as the decrease in Dated Brent prices was offset by increased
natural gas production and higher AECO pricing. Petroleum and natural
gas sales for the second quarter of 2013 was higher than the same
period in 2012 as a result of increased sales volumes and favorable
North American commodity prices.
Vermilion's consolidated petroleum and natural gas sales for the six
months ended June 30, 2013 was higher than the same period in 2012.
This increase was the result of increased sales volumes in all of
Vermilion's jurisdictions, partially offset by lower Dated Brent
pricing year-over-year.
CRUDE OIL INVENTORY
Vermilion carries an inventory of crude oil in France and Australia,
which is a result of timing differences between production and sales.
The following table summarizes the changes in Vermilion's crude oil
inventory positions:
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
(mbbls)
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening crude oil inventory
|
|
|
|
|
|
218
|
|
|
354
|
|
|
223
|
|
|
354
|
|
|
187
|
Adjustments
|
|
|
|
|
|
-
|
|
|
5
|
|
|
-
|
|
|
5
|
|
|
-
|
Crude oil production
|
|
|
|
|
|
945
|
|
|
930
|
|
|
904
|
|
|
1,875
|
|
|
1,838
|
Crude oil sales
|
|
|
|
|
|
(961)
|
|
|
(1,071)
|
|
|
(856)
|
|
|
(2,032)
|
|
|
(1,754)
|
Closing crude oil inventory
|
|
|
|
|
|
202
|
|
|
218
|
|
|
271
|
|
|
202
|
|
|
271
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening crude oil inventory
|
|
|
|
|
|
165
|
|
|
268
|
|
|
-
|
|
|
268
|
|
|
222
|
Crude oil production
|
|
|
|
|
|
670
|
|
|
476
|
|
|
634
|
|
|
1,146
|
|
|
1,239
|
Crude oil sales
|
|
|
|
|
|
(648)
|
|
|
(579)
|
|
|
(359)
|
|
|
(1,227)
|
|
|
(1,186)
|
Closing crude oil inventory
|
|
|
|
|
|
187
|
|
|
165
|
|
|
275
|
|
|
187
|
|
|
275
|
Inventory held on the balance sheet as at June 30, 2013 was comprised of
the following components:
($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
|
Australia
|
|
|
|
Total
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,667
|
|
|
|
3,956
|
|
|
|
7,623
|
Royalties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,217
|
|
|
|
-
|
|
|
|
1,217
|
Depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,217
|
|
|
|
3,617
|
|
|
|
7,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,101
|
|
|
|
7,573
|
|
|
|
16,674
|
DERIVATIVE INSTRUMENTS
The following tables summarize Vermilion's outstanding risk management
positions as at June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management - Oil
|
|
|
|
|
|
|
|
|
|
|
bbls/d
|
|
|
|
Strike Price(s) US $/bbl
|
Swap - WTI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
93.04
|
July 2013 - September 2013
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
95.47
|
July 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
94.98
|
Collar - WTI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 - September 2013
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
92.00 - 98.85
|
Collar - Dated Brent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
96.14 - 107.34
|
July 2013 - September 2013
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
|
|
97.86 - 107.68
|
July 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
97.50 - 109.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management - European natural gas
|
|
|
|
|
|
|
|
|
|
|
GJ/d
|
|
|
|
Strike Price(s) €/GJ
|
Swap - TTF 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2013 - September 2013
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
7.12
|
May 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
7.41
|
June 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
14,400
|
|
|
|
7.44
|
October 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
7.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management - Canadian natural gas
|
|
|
|
|
|
|
|
|
|
|
GJ/d
|
|
|
|
Strike Price(s) $/GJ
|
Swap - AECO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2013 - December 2013
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
3.65
|
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) 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2012 - March 2014
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
|
2.60 - 3.78
|
June 2012 - March 2014
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
2.30 - 3.75
|
1
|
TTF derivatives 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.
|
|
|
2
|
Physical AECO collars have a funded cost of $0.10/GJ.
|
From time to time Vermilion enters into new risk management positions.
Up to date information regarding outstanding risk management positions
is available on Vermilion's website at www.vermilionenergy.com/ir/hedging.cfm.
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Realized (gain) loss on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative instruments
|
|
|
|
|
|
(1,770)
|
|
|
2,787
|
|
|
3,591
|
|
(164%)
|
|
|
(149%)
|
|
|
1,017
|
|
|
9,309
|
|
(89%)
|
Per boe
|
|
|
|
|
|
(0.46)
|
|
|
0.75
|
|
|
1.11
|
|
(161%)
|
|
|
(141%)
|
|
|
0.13
|
|
|
1.33
|
|
(90%)
|
The realized gain on derivative instruments for the second quarter of
2013 is comprised primarily of amounts received on Vermilion's WTI
extendable swaps (which matured on June 30, 2013) and Dated Brent
costless collars (as the reference price was below the floor price on
select instruments for the entirety of the second quarter). The
realized gain for the second quarter of 2013 compares to a realized
loss in both the first quarter of 2013, which primarily resulted from
Dated Brent reference prices exceeding the ceiling price on the
costless collars, and the second quarter of 2012, where the loss
related both to premiums and amounts paid for settlement.
The realized loss for the six months ended June 30, 2013 is lower than
the realized loss for the same period in 2012 due to the aforementioned
realized gain recorded in the second quarter of 2013 and the absence of
premiums paid on funded derivatives.
ROYALTIES
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By product
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe and per mcf)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Crude oil & NGLs
|
|
|
|
15,353
|
|
|
14,810
|
|
|
13,242
|
|
4%
|
|
|
16%
|
|
|
30,163
|
|
|
27,483
|
|
10%
|
Per boe
|
|
|
|
5.95
|
|
|
5.93
|
|
|
6.46
|
|
-
|
|
|
(8%)
|
|
|
5.94
|
|
|
5.99
|
|
(1%)
|
Natural gas
|
|
|
|
447
|
|
|
980
|
|
|
89
|
|
(54%)
|
|
|
402%
|
|
|
1,427
|
|
|
300
|
|
376%
|
Per mcf
|
|
|
|
0.06
|
|
|
0.13
|
|
|
0.01
|
|
(54%)
|
|
|
500%
|
|
|
0.09
|
|
|
0.02
|
|
350%
|
Royalties
|
|
|
|
15,800
|
|
|
15,790
|
|
|
13,331
|
|
-
|
|
|
19%
|
|
|
31,590
|
|
|
27,783
|
|
14%
|
Per boe
|
|
|
|
4.06
|
|
|
4.24
|
|
|
4.11
|
|
(4%)
|
|
|
(1%)
|
|
|
4.15
|
|
|
3.97
|
|
5%
|
% of petroleum and natural gas sales
|
|
|
|
5.1%
|
|
|
5.1%
|
|
|
5.4%
|
|
|
|
|
|
|
|
5.1%
|
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By country
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
|
9,707
|
|
|
8,989
|
|
|
8,216
|
|
8%
|
|
|
18%
|
|
|
18,696
|
|
|
17,185
|
|
9%
|
Per boe
|
|
|
|
5.96
|
|
|
6.19
|
|
|
5.66
|
|
(4%)
|
|
|
5%
|
|
|
6.07
|
|
|
5.94
|
|
2%
|
% of petroleum and natural gas sales
|
|
|
|
9.6%
|
|
|
10.7%
|
|
|
11.0%
|
|
|
|
|
|
|
|
10.1%
|
|
|
11.1%
|
|
|
France
|
|
|
|
6,093
|
|
|
6,801
|
|
|
5,115
|
|
(10%)
|
|
|
19%
|
|
|
12,894
|
|
|
10,598
|
|
22%
|
Per boe
|
|
|
|
5.95
|
|
|
6.00
|
|
|
5.62
|
|
(1%)
|
|
|
6%
|
|
|
5.97
|
|
|
5.69
|
|
5%
|
% of petroleum and natural gas sales
|
|
|
|
6.1%
|
|
|
5.6%
|
|
|
5.4%
|
|
|
|
|
|
|
|
5.8%
|
|
|
5.3%
|
|
|
Canadian royalties, as a percentage of sales, decreased to 9.6% for the
three months ended June 30, 2013 from 10.7% for the prior quarter and
11.0% for the comparative period of the prior year. For the six months
ended June 30, 2013, royalties, as a percentage of sales, decreased to
10.1% from 11.1% for the six months ended June 30, 2012. These
decreases are largely associated with the timing of placing additional
Cardium wells on production that benefit from a royalty incentive on
initial production volumes.
In France, the primary portion of the royalties levied is based on units
of production and that component, therefore, is not subject to changes
in commodity prices. As average Brent-crude oil prices were slightly
weaker for the three and six month periods ended June 30, 2013 versus
the comparative periods presented, royalties, as a percentage of sales,
were higher in the current periods.
Production in the Netherlands and Australia is not subject to royalties.
OPERATING EXPENSE
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By product
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe and per mcf)
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Crude oil & NGLs
|
|
|
35,682
|
|
|
41,855
|
|
|
28,645
|
|
(15%)
|
|
|
25%
|
|
|
77,537
|
|
|
65,511
|
|
18%
|
Per boe
|
|
|
13.84
|
|
|
16.77
|
|
|
13.97
|
|
(17%)
|
|
|
(1%)
|
|
|
15.28
|
|
|
14.28
|
|
7%
|
Natural gas
|
|
|
12,400
|
|
|
10,720
|
|
|
11,580
|
|
16%
|
|
|
7%
|
|
|
23,120
|
|
|
22,267
|
|
4%
|
Per mcf
|
|
|
1.58
|
|
|
1.45
|
|
|
1.62
|
|
9%
|
|
|
(2%)
|
|
|
1.52
|
|
|
1.54
|
|
(1%)
|
Operating
|
|
|
48,082
|
|
|
52,575
|
|
|
40,225
|
|
(9%)
|
|
|
20%
|
|
|
100,657
|
|
|
87,778
|
|
15%
|
Per boe
|
|
|
12.36
|
|
|
14.10
|
|
|
12.41
|
|
(12%)
|
|
|
-
|
|
|
13.21
|
|
|
12.54
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By country
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
15,975
|
|
|
13,841
|
|
|
13,217
|
|
15%
|
|
|
21%
|
|
|
29,816
|
|
|
27,484
|
|
8%
|
Per boe
|
|
|
9.81
|
|
|
9.53
|
|
|
9.10
|
|
3%
|
|
|
8%
|
|
|
9.68
|
|
|
9.49
|
|
2%
|
France
|
|
|
16,935
|
|
|
19,939
|
|
|
13,755
|
|
(15%)
|
|
|
23%
|
|
|
36,874
|
|
|
28,857
|
|
28%
|
Per boe
|
|
|
16.53
|
|
|
17.58
|
|
|
15.11
|
|
(6%)
|
|
|
9%
|
|
|
17.08
|
|
|
15.50
|
|
10%
|
Netherlands
|
|
|
5,260
|
|
|
3,969
|
|
|
5,457
|
|
33%
|
|
|
(4%)
|
|
|
9,229
|
|
|
9,566
|
|
(4%)
|
Per boe
|
|
|
8.93
|
|
|
7.06
|
|
|
10.51
|
|
26%
|
|
|
(15%)
|
|
|
8.02
|
|
|
9.04
|
|
(11%)
|
Australia
|
|
|
9,912
|
|
|
14,826
|
|
|
7,796
|
|
(33%)
|
|
|
27%
|
|
|
24,738
|
|
|
21,871
|
|
13%
|
Per boe
|
|
|
15.30
|
|
|
25.61
|
|
|
21.68
|
|
(40%)
|
|
|
(29%)
|
|
|
20.16
|
|
|
18.44
|
|
9%
|
In Canada, second quarter operating expense of $16.0 million was higher
than the $13.8 million for the first quarter of 2013 and the $13.2
million for the second quarter of 2012. The quarter-over-quarter
increase was due to higher fuel and electricity costs, additional
expense associated with rig mats as well as additional major project
activity. The increase in operating expense for the three and six
months ended June 30, 2013 as compared to the same periods of the prior
year is related to higher fuel and electricity costs, higher property
tax expense and the timing of major project work. Despite additional
volumes, operating costs per boe for the three months and six months
ended June 30, 2013 increased as compared to the comparative periods
presented, due to the higher level of expense.
In France, second quarter operating expense of $16.9 million was lower
than the expense of $19.9 million for the first quarter of 2013 due to
the large inventory draw that occurred in the prior quarter. When
inventoried product is sold, the related costs are expensed in the
period of sale. Operating expense for the three and six months ended
June 30, 2013 was higher than the expense for the comparative periods
of the prior year due to inventory draws in the current periods as
opposed to inventory builds for the comparative periods, additional
operating expense associated with a December 2012 acquisition in France
as well as the timing of repair and optimization activities. Operating
expense per boe has decreased quarter-over-quarter due to the timing of
downhole work. Operating expense per boe for the three and six months
ended June 30, 2013 increased from the comparative periods in the prior
year despite higher volumes as a result of additional downhole work and
higher salary costs.
In the Netherlands, operating expense for the three months ended June
30, 2013 increased to $5.3 million from $4.0 million in the prior
quarter due to the timing of project work. This resulted in a
quarter-over-quarter increase in operating expense per boe. For the
three and six months ended June 30, 2013, operating expense remained
relatively consistent with the same periods of the prior year; however,
higher volumes resulted in lower operating expense per boe for the
current periods.
In Australia, second quarter operating expense decreased to $9.9 million
from the previous quarter's expense of $14.8 million due to the prior
quarter's crude oil inventory draw. A decrease in crude oil inventory
results in the related production costs being expensed when the product
is sold. Operating expense for the three and six months ended June 30,
2013 increased from the comparative periods in the prior year due to
inventory builds in those prior periods which resulted in production
costs being temporarily carried on the balance sheet until sale.
Higher production for the current quarter resulted in a decrease in
operating expense per boe versus both the prior quarter as well as the
second quarter of 2012.
TRANSPORTATION EXPENSE
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By country
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
|
|
2,611
|
|
|
2,269
|
|
|
2,350
|
|
15%
|
|
|
11%
|
|
|
4,880
|
|
|
4,394
|
|
11%
|
Per boe
|
|
|
|
|
1.60
|
|
|
1.56
|
|
|
1.62
|
|
3%
|
|
|
(1%)
|
|
|
1.58
|
|
|
1.52
|
|
4%
|
France
|
|
|
|
|
2,416
|
|
|
2,754
|
|
|
1,894
|
|
(12%)
|
|
|
28%
|
|
|
5,170
|
|
|
4,542
|
|
14%
|
Per boe
|
|
|
|
|
2.36
|
|
|
2.43
|
|
|
2.08
|
|
(3%)
|
|
|
13%
|
|
|
2.39
|
|
|
2.44
|
|
(2%)
|
Ireland
|
|
|
|
|
1,626
|
|
|
1,618
|
|
|
1,974
|
|
-
|
|
|
(18%)
|
|
|
3,244
|
|
|
3,975
|
|
(18%)
|
Transportation
|
|
|
|
|
6,653
|
|
|
6,641
|
|
|
6,218
|
|
-
|
|
|
7%
|
|
|
13,294
|
|
|
12,911
|
|
3%
|
Per boe
|
|
|
|
|
1.71
|
|
|
1.78
|
|
|
1.92
|
|
(4%)
|
|
|
(11%)
|
|
|
1.75
|
|
|
1.84
|
|
(5%)
|
Consolidated transportation expense for the second quarter of 2013 was
relatively unchanged as compared to the first quarter of 2013 as the
impact of higher sales volumes in Canada was offset by the impact of a
reduced number of shipments in France.
Consolidated transportation expense for the three and six months ended
June 30, 2013 was higher than the same periods in 2012. This increase
resulted from higher sales volumes in Canada and France, partially
offset by lower payments under the ship or pay agreement related to the
Corrib project.
GENERAL AND ADMINISTRATION EXPENSE
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
General and administration
|
|
|
|
|
11,313
|
|
|
12,610
|
|
|
12,068
|
|
(10%)
|
|
|
(6%)
|
|
|
23,923
|
|
|
22,216
|
|
8%
|
Per boe
|
|
|
|
|
2.91
|
|
|
3.38
|
|
|
3.72
|
|
(14%)
|
|
|
(22%)
|
|
|
3.14
|
|
|
3.17
|
|
(1%)
|
General and administration expense for the second quarter of 2013
decreased slightly from the prior quarter due to the timing of
corporate expenditures. The decrease in expense for the current
quarter, as compared to the second quarter of the prior year, is
associated with higher third party overhead recoveries. For the six
months ended June 30, 2013, general and administration expense
increased as a result of increased staffing levels required to support
Vermilion's operational activities coupled with expenditure timing.
EQUITY BASED COMPENSATION EXPENSE
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Equity based compensation
|
|
|
|
|
10,724
|
|
|
16,136
|
|
|
9,861
|
|
(34%)
|
|
|
9%
|
|
|
26,860
|
|
|
19,916
|
|
35%
|
Per boe
|
|
|
|
|
2.76
|
|
|
4.33
|
|
|
3.04
|
|
(36%)
|
|
|
(9%)
|
|
|
3.53
|
|
|
2.84
|
|
24%
|
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 second quarter of 2013 was
lower than the preceeding quarter due to an overall decrease in
outstanding awards. The expense for the three and six months ended
June 30, 2013 was higher than the expense for the same period in 2012
as the 2013 expense reflects the revision of future performance
condition assumptions starting in the fourth quarter of 2012.
INTEREST EXPENSE
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Interest expense
|
|
|
|
|
9,336
|
|
|
8,689
|
|
|
6,600
|
|
7%
|
|
|
41%
|
|
|
18,025
|
|
|
12,701
|
|
42%
|
Per boe
|
|
|
|
|
2.40
|
|
|
2.33
|
|
|
2.04
|
|
3%
|
|
|
18%
|
|
|
2.37
|
|
|
1.81
|
|
31%
|
Interest expense for the three and six months ended June 30, 2013
increased versus the comparable periods due to increased borrowings
under Vermilion's revolving credit facility.
DEPLETION AND DEPRECIATION, ACCRETION, IMPAIRMENTS AND GAIN ON
ACQUISITION
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Depletion and depreciation
|
|
|
|
|
78,418
|
|
|
81,448
|
|
|
76,512
|
|
(4%)
|
|
|
2%
|
|
|
159,866
|
|
|
152,360
|
|
5%
|
Per boe
|
|
|
|
|
20.16
|
|
|
21.85
|
|
|
23.60
|
|
(8%)
|
|
|
(15%)
|
|
|
20.99
|
|
|
21.76
|
|
(4%)
|
Accretion
|
|
|
|
|
6,000
|
|
|
5,824
|
|
|
5,792
|
|
3%
|
|
|
4%
|
|
|
11,824
|
|
|
11,030
|
|
7%
|
Per boe
|
|
|
|
|
1.54
|
|
|
1.56
|
|
|
1.79
|
|
(1%)
|
|
|
(14%)
|
|
|
1.55
|
|
|
1.58
|
|
(2%)
|
Impairments
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,800
|
|
(100%)
|
Per boe
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9.40
|
|
(100%)
|
Gain on acquisition
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(45,309)
|
|
(100%)
|
Per boe
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6.47)
|
|
(100%)
|
Depletion and depreciation expense for the second quarter of 2013 was
relatively consistent with both the first quarter of 2013 and the
second quarter of 2012. Depletion and depreciation expense for the six
months ended June 30, 2013 was 5% higher than the same period in 2012
primarily due to the result of increased production year-over-year.
Accretion expense for the second quarter of 2013 was relatively
consistent with both the first quarter of 2013 and the second quarter
of 2012. Accretion expense was higher for the six months ended June
30, 2013 as compared to the same period in 2012 as a result of
accretion expense on asset retirement obligations recorded for the
acquisition in France in the fourth quarter of 2012.
The impairment losses for the six months ended June 30, 2012 pertained
to impairment losses recorded on Vermilion's conventional deep gas and
shallow coal bed methane natural gas plays. These impairment charges
were the result of significant declines in the forward pricing
assumptions for natural gas in Canada.
The gain on acquisition for the six months ended June 30, 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
|
|
|
Six Months Ended
|
|
% change
|
By classification
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Current taxes before PRRT
|
|
|
|
36,719
|
|
|
35,557
|
|
|
29,225
|
|
3%
|
|
|
26%
|
|
|
72,276
|
|
|
61,589
|
|
17%
|
Per boe
|
|
|
|
9.44
|
|
|
9.54
|
|
|
9.01
|
|
(1%)
|
|
|
5%
|
|
|
9.49
|
|
|
8.80
|
|
8%
|
PRRT
|
|
|
|
12,590
|
|
|
11,153
|
|
|
8,460
|
|
13%
|
|
|
49%
|
|
|
23,743
|
|
|
35,729
|
|
(34%)
|
Per boe
|
|
|
|
3.24
|
|
|
2.99
|
|
|
2.61
|
|
8%
|
|
|
24%
|
|
|
3.12
|
|
|
5.10
|
|
(39%)
|
Current taxes
|
|
|
|
49,309
|
|
|
46,710
|
|
|
37,685
|
|
6%
|
|
|
31%
|
|
|
96,019
|
|
|
97,318
|
|
(1%)
|
Per boe
|
|
|
|
12.68
|
|
|
12.53
|
|
|
11.62
|
|
1%
|
|
|
9%
|
|
|
12.61
|
|
|
13.90
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
|
|
Six Months Ended
|
|
% change
|
By country
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
Q2/13 vs.
|
|
|
Q2/13 vs.
|
|
|
June 30,
|
|
|
June 30,
|
|
2013 vs.
|
($M except per boe)
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
Q1/13
|
|
|
Q2/12
|
|
|
2013
|
|
|
2012
|
|
2012
|
Canada
|
|
|
|
328
|
|
|
251
|
|
|
845
|
|
31%
|
|
|
(61%)
|
|
|
579
|
|
|
1,287
|
|
(55%)
|
Per boe
|
|
|
|
0.20
|
|
|
0.17
|
|
|
0.58
|
|
18%
|
|
|
(66%)
|
|
|
0.19
|
|
|
0.44
|
|
(57%)
|
France
|
|
|
|
16,124
|
|
|
18,659
|
|
|
15,725
|
|
(14%)
|
|
|
3%
|
|
|
34,783
|
|
|
28,620
|
|
22%
|
Per boe
|
|
|
|
15.74
|
|
|
16.45
|
|
|
17.27
|
|
(4%)
|
|
|
(9%)
|
|
|
16.11
|
|
|
15.38
|
|
5%
|
Netherlands
|
|
|
|
9,621
|
|
|
9,434
|
|
|
5,875
|
|
2%
|
|
|
64%
|
|
|
19,055
|
|
|
14,932
|
|
28%
|
Per boe
|
|
|
|
16.34
|
|
|
16.78
|
|
|
11.31
|
|
(3%)
|
|
|
44%
|
|
|
16.55
|
|
|
14.11
|
|
17%
|
Australia
|
|
|
|
23,236
|
|
|
18,366
|
|
|
15,240
|
|
27%
|
|
|
52%
|
|
|
41,602
|
|
|
52,479
|
|
(21%)
|
Per boe
|
|
|
|
35.86
|
|
|
31.73
|
|
|
42.38
|
|
13%
|
|
|
(15%)
|
|
|
33.91
|
|
|
44.24
|
|
(23%)
|
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.
Current taxes for the second quarter of 2013 was higher than the first
quarter of 2013 and the same period in 2012 due to higher petroleum and
natural gas sales. Current taxes for the six months ended June 30,
2013 was slightly lower than the same period in 2012 despite higher
petroleum and natural gas sales due to higher capital expenditures in
Australia during the current year, which resulted in decreased PRRT.
OTHER EXPENSE (INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M except per boe)
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
271
|
|
|
(67)
|
|
|
585
|
|
|
204
|
|
|
8,568
|
Per boe
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
|
(0.02)
|
|
|
0.18
|
|
|
0.03
|
|
|
1.22
|
Other expense for the six months ended June 30, 2012 was comprised
primarily of $8.5 million relating to transfer taxes paid to regulatory
authorities in France pursuant to the first quarter of 2012 acquisition
of certain working interests in six producing fields located in the
Paris and Aquitaine basins.
FOREIGN EXCHANGE
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
($M except per boe)
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Unrealized foreign exchange (gain) loss
|
|
|
|
|
|
(28,025)
|
|
|
2,519
|
|
|
16,730
|
|
|
(25,506)
|
|
|
11,483
|
Per boe
|
|
|
|
|
|
(7.21)
|
|
|
0.68
|
|
|
5.16
|
|
|
(3.35)
|
|
|
1.64
|
Realized foreign exchange (gain) loss
|
|
|
|
|
|
(1,272)
|
|
|
617
|
|
|
(755)
|
|
|
(655)
|
|
|
65
|
Per boe
|
|
|
|
|
|
(0.33)
|
|
|
0.17
|
|
|
(0.23)
|
|
|
(0.09)
|
|
|
0.01
|
Foreign exchange (gain) loss
|
|
|
|
|
|
(29,297)
|
|
|
3,136
|
|
|
15,975
|
|
|
(26,161)
|
|
|
11,548
|
Per boe
|
|
|
|
|
|
(7.54)
|
|
|
0.85
|
|
|
4.93
|
|
|
(3.44)
|
|
|
1.65
|
As a result of Vermilion's international operations, Vermilion conducts
business in currencies other than the Canadian dollar and has monetary
assets and liabilities (including cash, receivables, payables,
derivative assets and liabilities, and intercompany loans) denominated
in such currencies. Vermilion's exposure to foreign currencies
includes the U.S. Dollar, the Euro and the Australian Dollar.
Foreign exchange gains and losses are comprised of both unrealized and
realized amounts. Unrealized foreign exchange gains and losses are the
result of translating monetary assets and liabilities held in
non-functional currencies to the respective functional currencies of
Vermilion and its subsidiaries. Realized gains and losses are the
result of foreign exchange fluctuations and the timing of payments on
transactions conducted in non-functional currencies and as such are
subject to fluctuations.
For the three and six months ended June 30, 2013, the unrealized foreign
exchange gain primarily resulted from the impact of the appreciation of
the Euro against the Canadian dollar and the resultant impact on
Vermilion's financial balances.
SUMMARY OF RESULTS
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sept 30,
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sept 30,
|
($M except per share)
|
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
Petroleum and natural gas sales
|
|
|
|
|
|
311,966
|
|
|
309,576
|
|
|
241,233
|
|
|
284,838
|
|
|
246,544
|
|
|
310,488
|
|
|
275,172
|
|
|
248,361
|
Net earnings (loss)
|
|
|
|
|
|
106,198
|
|
|
52,137
|
|
|
56,914
|
|
|
30,798
|
|
|
37,816
|
|
|
65,094
|
|
|
(30,243)
|
|
|
64,442
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
1.05
|
|
|
0.53
|
|
|
0.58
|
|
|
0.31
|
|
|
0.39
|
|
|
0.67
|
|
|
(0.32)
|
|
|
0.71
|
Diluted
|
|
|
|
|
|
1.04
|
|
|
0.51
|
|
|
0.57
|
|
|
0.31
|
|
|
0.38
|
|
|
0.66
|
|
|
(0.32)
|
|
|
0.70
|
The fluctuations in Vermilion's petroleum and natural gas sales and net
earnings (loss) from quarter-to-quarter are primarily caused by
variations in sales volumes, crude oil and natural gas prices and the
impact of royalties and tax legislation in the jurisdictions in which
Vermilion operates. In addition, changes in foreign exchange rates may
result in unrealized gains and losses on Vermilion's financial balances
held in foreign currencies while changes in petroleum and natural gas
prices may impact gains and losses on derivative instruments and may
result in impairment charges or the reversal of impairment charges
incurred in previous periods.
LIQUIDITY AND CAPITAL RESOURCES
Vermilion's net debt as at June 30, 2013 was $674.4 million compared to
$677.2 million as at December 31, 2012.
Long-term debt was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Annualized Interest Rate
|
|
|
As At
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Dec 31,
|
|
|
June 30,
|
|
|
|
|
Dec 31,
|
($M)
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
|
2012
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
3.3%
|
|
|
3.3%
|
|
|
557,788
|
|
|
|
|
419,784
|
Senior unsecured notes
|
|
|
|
|
|
|
|
|
|
|
6.5%
|
|
|
6.5%
|
|
|
222,682
|
|
|
|
|
222,238
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
4.3%
|
|
|
4.7%
|
|
|
780,470
|
|
|
|
|
642,022
|
Revolving Credit Facility
At June 30, 2013, Vermilion had in place a bank revolving credit
facility totalling $1.2 billion, of which approximately $557.8 million
was drawn. The facility, which matures on May 31, 2016, is fully
revolving up to the date of maturity.
The facility is extendable from time to time, but not more than once per
year, for a period not longer than three years, at the option of the
lenders and upon notice from Vermilion. If no extension is granted by
the lenders, the amounts owing pursuant to the facility are repayable
on the maturity date. This facility bears interest at a rate
applicable to demand loans plus applicable margins.
The amount available to Vermilion under this facility is reduced by
outstanding letters of credit associated with Vermilion's operations
totalling $51.3 million as at June 30, 2013 (December 31, 2012 - $49.2
million).
The facility is secured by various fixed and floating charges against
the subsidiaries of Vermilion. Under the terms of the facility,
Vermilion must maintain a ratio of total bank borrowings (defined as
consolidated total debt), to consolidated net earnings before interest,
income taxes, depreciation, accretion and other certain non-cash items
(defined as consolidated EBITDA) of not greater than 4.0. In addition,
Vermilion must maintain a ratio of consolidated total senior debt
(defined as consolidated total debt excluding unsecured and
subordinated debt) to consolidated EBITDA of not greater than 3.0.
As at June 30, 2013, Vermilion was in compliance with its financial
covenants.
Senior Unsecured Notes
On February 10, 2011, Vermilion issued $225.0 million of senior
unsecured notes at par. The notes bear interest at a rate of 6.5% per
annum and will mature on February 10, 2016. As direct senior unsecured
obligations of Vermilion, the notes rank pari passu with all other
present and future unsecured and unsubordinated indebtedness of the
Company.
Vermilion may, at its option, prior to February 10, 2014, redeem up to
35% of the notes with net proceeds of equity offerings by the Company
at a redemption price equal to 106.5% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
applicable redemption date. Subsequently, Vermilion may, on or after
February 10, 2014, redeem all or part of the notes at fixed redemption
prices, plus, in each case, accrued and unpaid interest, if any, to the
applicable redemption date. The notes were initially recognized at
fair value net of transaction costs and are subsequently measured at
amortized cost using an effective interest rate of 7.1%.
ASSET RETIREMENT OBLIGATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As At
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
Dec 31,
|
($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
Asset retirement obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,868
|
|
|
|
371,063
|
The decrease in asset retirement obligations was primarily the result of
an overall increase in the discount rates applied to the obligations.
DIVIDENDS
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
Six Months
Ended
|
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
Dec 31,
|
($M)
|
|
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2012
|
Cash flows from operating activities
|
|
|
|
|
|
179,074
|
|
|
|
369,786
|
|
|
|
496,580
|
Net earnings
|
|
|
|
|
|
106,198
|
|
|
|
158,335
|
|
|
|
190,622
|
Dividends declared
|
|
|
|
|
|
60,776
|
|
|
|
120,388
|
|
|
|
223,717
|
Excess of cash flows from operating activities over dividends declared
|
|
|
|
|
|
118,298
|
|
|
|
249,398
|
|
|
|
272,863
|
Excess (shortfall) of net earnings over dividends declared
|
|
|
|
|
|
45,422
|
|
|
|
37,947
|
|
|
|
(33,095)
|
During the six months ended June 30, 2013, Vermilion maintained monthly
dividends at $0.20 per share and declared dividends totalling $120.4
million.
Excess cash flows from operating activities over dividends declared are
used to fund capital expenditures, asset retirement obligations and
debt repayments.
Following Vermilion's conversion to a trust in January 2003, the
distribution remained at $0.17 per unit per month until it was
increased to $0.19 per unit per month in December 2007. Effective
September 1, 2010, Vermilion converted to a dividend paying corporation
and dividends remained at $0.19 per share per month until increased to
$0.20 per share per month in January 2013. The January 2013 increase
was announced on November 14, 2012 and resulted in an increase in the
monthly cash dividends by 5.3% to $0.20 per share per month beginning
with the January 2013 dividend (paid on February 15, 2013).
Vermilion's policy with respect to dividends is to be conservative and
maintain a low ratio of dividends to fund flows from operations.
During low price commodity cycles, Vermilion will initially maintain
dividends and allow the ratio to rise. Should low commodity price
cycles remain for an extended period of time, Vermilion will evaluate
the necessity of changing the level of dividends, taking into
consideration capital development requirements, debt levels and
acquisition opportunities.
Over the next two years, Vermilion anticipates that Corrib, Cardium and
other exploration and development activities will require a significant
capital investment by Vermilion. Although Vermilion currently expects
to be able to maintain its current dividend, Vermilion's fund flows
from operations may not be sufficient during this period to fund cash
dividends, capital expenditures and asset retirement obligations.
Vermilion will evaluate its ability to finance any shortfalls with
debt, issuances of equity or by reducing some or all categories of
expenditures to ensure that total expenditures do not exceed available
funds.
SHAREHOLDERS' EQUITY
During the six months ended June 30, 2013, Vermilion issued 2.3 million
shares pursuant to the dividend reinvestment plan and Vermilion's
equity based compensation programs. Shareholders' capital increased by
$99.0 million as a result of the issuance of those shares.
As at June 30, 2013, there were 101.4 million shares outstanding. As at
July 31, 2013, there were 101.6 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 June 30, 2013 of $344.0 million, primarily related to
completion of the natural gas processing facility, sub-surface well
work, and permitting, preparations and construction of the onshore
pipeline. Furthermore, pursuant to the terms of the acquisition
agreement, Vermilion made an additional payment to the vendor of $134.3
million (US$135 million) at the end of 2012. In 2011, approvals and
permissions were granted for the onshore gas pipeline and tunneling
activities commenced in December of 2012. Vermilion expects to
continue significant capital investment on this project over the next
two years and currently expects to achieve initial gas production from
this field between the end of 2014 and 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 June 30, 2013.
Vermilion has not entered into any guarantee or off balance sheet
arrangements that would materially impact Vermilion's financial
position or results of operations.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in Vermilion's internal control over financial
reporting that occurred during the period covered by this MD&A that has
materially affected, or is reasonably likely to materially affect, its
internal control over financial reporting.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
As of January 1, 2013, Vermilion adopted the following pronouncements as
issued by the IASB. The adoption of these standards did not have a
material impact on Vermilion's consolidated financial statements.
IFRS 10 "Consolidated Financial Statements"
IFRS 10 replaced Standing Interpretations Committee 12, "Consolidation -
Special Purpose Entities" and the consolidation requirements of IAS 27
"Consolidated and Separate Financial Statements". The new standard
replaces the existing risk and rewards based approaches and establishes
control as the determining factor when determining whether an interest
in another entity should be included in the consolidated financial
statements.
IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". The new standard
focuses on the rights and obligations of an arrangement, rather than
its legal form. The standard redefines joint operations and joint
ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted.
IFRS 12 "Disclosure of Interests in Other Entities"
IFRS 12 provides comprehensive disclosure requirements 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 pronouncements is not expected to have a
material impact on Vermilion's consolidated financial statements:
IFRS 9 "Financial Instruments"
As of January 1, 2015, Vermilion will be required to adopt IFRS 9, as
part of the first phase of the IASB's project to replace IAS 39,
"Financial Instruments: Recognition and Measurement". The new standard
replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value.
NETBACKS
The following table includes segmented financial 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 June 30, 2013
|
|
Six Months Ended June 30, 2013
|
|
|
Three Months
Ended June 30,
2012
|
|
Six Months
Ended June 30,
2012
|
|
|
|
Oil & NGLs
|
|
Natural Gas
|
|
|
Total
|
|
Oil & NGLs
|
|
Natural Gas
|
|
|
Total
|
|
|
Total
|
|
Total
|
|
|
|
$/bbl
|
|
$/mcf
|
|
|
$/boe
|
|
$/bbl
|
|
$/mcf
|
|
|
$/boe
|
|
|
$/boe
|
|
$/boe
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
88.74
|
|
3.84
|
|
|
62.00
|
|
87.12
|
|
3.60
|
|
|
59.93
|
|
|
51.58
|
|
53.70
|
Realized hedging gain (loss)
|
|
|
0.35
|
|
0.01
|
|
|
0.22
|
|
0.32
|
|
-
|
|
|
0.19
|
|
|
(0.29)
|
|
(0.37)
|
Royalties
|
|
|
(9.70)
|
|
(0.09)
|
|
|
(5.96)
|
|
(9.70)
|
|
(0.16)
|
|
|
(6.07)
|
|
|
(5.66)
|
|
(5.94)
|
Transportation
|
|
|
(2.02)
|
|
(0.17)
|
|
|
(1.60)
|
|
(2.01)
|
|
(0.16)
|
|
|
(1.58)
|
|
|
(1.62)
|
|
(1.52)
|
Operating
|
|
|
(9.76)
|
|
(1.65)
|
|
|
(9.81)
|
|
(9.51)
|
|
(1.65)
|
|
|
(9.68)
|
|
|
(9.10)
|
|
(9.49)
|
Operating netback
|
|
|
67.61
|
|
1.94
|
|
|
44.85
|
|
66.22
|
|
1.63
|
|
|
42.79
|
|
|
34.91
|
|
36.38
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
100.79
|
|
9.41
|
|
|
98.04
|
|
105.40
|
|
10.28
|
|
|
102.84
|
|
|
104.15
|
|
106.56
|
Realized hedging gain (loss)
|
|
|
1.47
|
|
-
|
|
|
1.38
|
|
(0.30)
|
|
-
|
|
|
(0.28)
|
|
|
(3.30)
|
|
(4.25)
|
Royalties
|
|
|
(6.23)
|
|
(0.28)
|
|
|
(5.95)
|
|
(6.24)
|
|
(0.29)
|
|
|
(5.97)
|
|
|
(5.62)
|
|
(5.69)
|
Transportation
|
|
|
(2.51)
|
|
-
|
|
|
(2.36)
|
|
(2.54)
|
|
-
|
|
|
(2.39)
|
|
|
(2.08)
|
|
(2.44)
|
Operating
|
|
|
(17.01)
|
|
(1.55)
|
|
|
(16.53)
|
|
(17.54)
|
|
(1.62)
|
|
|
(17.08)
|
|
|
(15.11)
|
|
(15.50)
|
Operating netback
|
|
|
76.51
|
|
7.58
|
|
|
74.58
|
|
78.78
|
|
8.37
|
|
|
77.12
|
|
|
78.04
|
|
78.68
|
Netherlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
84.11
|
|
10.82
|
|
|
65.08
|
|
96.46
|
|
10.47
|
|
|
63.19
|
|
|
57.88
|
|
58.49
|
Operating
|
|
|
-
|
|
(1.50)
|
|
|
(8.93)
|
|
-
|
|
(1.35)
|
|
|
(8.02)
|
|
|
(10.51)
|
|
(9.04)
|
Operating netback
|
|
|
84.11
|
|
9.32
|
|
|
56.15
|
|
96.46
|
|
9.12
|
|
|
55.17
|
|
|
47.37
|
|
49.45
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
111.54
|
|
-
|
|
|
111.54
|
|
115.89
|
|
-
|
|
|
115.89
|
|
|
129.94
|
|
119.16
|
Realized hedging loss
|
|
|
-
|
|
-
|
|
|
-
|
|
(0.82)
|
|
-
|
|
|
(0.82)
|
|
|
(0.47)
|
|
(0.28)
|
Operating
|
|
|
(15.30)
|
|
-
|
|
|
(15.30)
|
|
(20.16)
|
|
-
|
|
|
(20.16)
|
|
|
(21.68)
|
|
(18.44)
|
PRRT 1
|
|
|
(19.43)
|
|
-
|
|
|
(19.43)
|
|
(19.35)
|
|
-
|
|
|
(19.35)
|
|
|
(23.53)
|
|
(30.12)
|
Operating netback
|
|
|
76.81
|
|
-
|
|
|
76.81
|
|
75.56
|
|
-
|
|
|
75.56
|
|
|
84.26
|
|
70.32
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
98.95
|
|
7.22
|
|
|
80.21
|
|
101.42
|
|
7.00
|
|
|
81.60
|
|
|
76.04
|
|
79.57
|
Realized hedging gain (loss)
|
|
|
0.68
|
|
-
|
|
|
0.46
|
|
(0.21)
|
|
-
|
|
|
(0.13)
|
|
|
(1.11)
|
|
(1.33)
|
Royalties
|
|
|
(5.95)
|
|
(0.06)
|
|
|
(4.06)
|
|
(5.94)
|
|
(0.09)
|
|
|
(4.15)
|
|
|
(4.11)
|
|
(3.97)
|
Transportation
|
|
|
(1.69)
|
|
(0.29)
|
|
|
(1.71)
|
|
(1.73)
|
|
(0.30)
|
|
|
(1.75)
|
|
|
(1.92)
|
|
(1.84)
|
Operating
|
|
|
(13.84)
|
|
(1.58)
|
|
|
(12.36)
|
|
(15.28)
|
|
(1.52)
|
|
|
(13.21)
|
|
|
(12.41)
|
|
(12.54)
|
PRRT 1
|
|
|
(4.88)
|
|
-
|
|
|
(3.24)
|
|
(4.68)
|
|
-
|
|
|
(3.12)
|
|
|
(2.61)
|
|
(5.10)
|
Operating netback
|
|
|
73.27
|
|
5.29
|
|
|
59.30
|
|
73.58
|
|
5.09
|
|
|
59.24
|
|
|
53.88
|
|
54.79
|
General and administration
|
|
|
|
|
|
|
|
(2.91)
|
|
|
|
|
|
|
(3.14)
|
|
|
(3.72)
|
|
(3.17)
|
Interest expense
|
|
|
|
|
|
|
|
(2.40)
|
|
|
|
|
|
|
(2.37)
|
|
|
(2.04)
|
|
(1.81)
|
Realized foreign exchange
gain (loss)
|
|
|
|
|
|
|
|
0.33
|
|
|
|
|
|
|
0.09
|
|
|
0.23
|
|
(0.01)
|
Other income (expense)
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
0.07
|
|
|
0.06
|
|
(1.15)
|
Current income taxes 1
|
|
|
|
|
|
|
|
(9.44)
|
|
|
|
|
|
|
(9.49)
|
|
|
(9.01)
|
|
(8.80)
|
Fund flows netback
|
|
|
|
|
|
|
|
44.90
|
|
|
|
|
|
|
44.40
|
|
|
39.40
|
|
39.85
|
Accretion
|
|
|
|
|
|
|
|
(1.54)
|
|
|
|
|
|
|
(1.55)
|
|
|
(1.79)
|
|
(1.58)
|
Depletion and depreciation
|
|
|
|
|
|
|
|
(20.16)
|
|
|
|
|
|
|
(20.99)
|
|
|
(23.60)
|
|
(21.76)
|
Impairments
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
-
|
|
(9.40)
|
Gain on acquisition
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
-
|
|
6.47
|
Deferred taxes
|
|
|
|
|
|
|
|
(2.46)
|
|
|
|
|
|
|
(1.79)
|
|
|
(0.09)
|
|
4.02
|
Unrealized other expense
|
|
|
|
|
|
|
|
(0.09)
|
|
|
|
|
|
|
(0.10)
|
|
|
(0.24)
|
|
(0.07)
|
Unrealized foreign exchange
gain (loss)
|
|
|
|
|
|
|
|
7.21
|
|
|
|
|
|
|
3.35
|
|
|
(5.16)
|
|
(1.64)
|
Unrealized gain on derivative
instruments
|
|
|
|
|
|
|
|
2.22
|
|
|
|
|
|
|
0.99
|
|
|
6.17
|
|
1.67
|
Equity based compensation
|
|
|
|
|
|
|
|
(2.76)
|
|
|
|
|
|
|
(3.53)
|
|
|
(3.04)
|
|
(2.84)
|
Earnings netback
|
|
|
|
|
|
|
|
27.32
|
|
|
|
|
|
|
20.78
|
|
|
11.65
|
|
14.72
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
|
2013
|
|
|
|
2012
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
235,598
|
|
|
|
102,125
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
160,425
|
|
|
|
180,064
|
Crude oil inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
16,674
|
|
|
|
25,719
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
2,149
|
|
|
|
2,086
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
17,168
|
|
|
|
10,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432,014
|
|
|
|
320,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
192,124
|
|
|
|
193,354
|
Exploration and evaluation assets
|
|
|
|
|
|
|
|
|
4
|
|
|
|
128,571
|
|
|
|
117,161
|
Capital assets
|
|
|
|
|
|
|
|
|
3
|
|
|
|
2,546,298
|
|
|
|
2,445,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,299,007
|
|
|
|
3,076,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
232,249
|
|
|
|
300,682
|
Dividends payable
|
|
|
|
|
|
|
|
|
7
|
|
|
|
20,284
|
|
|
|
18,836
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
|
|
8,484
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
72,370
|
|
|
|
27,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,912
|
|
|
|
355,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
6
|
|
|
|
780,470
|
|
|
|
642,022
|
Asset retirement obligations
|
|
|
|
|
|
|
|
|
5
|
|
|
|
358,868
|
|
|
|
371,063
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
298,519
|
|
|
|
288,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,763,769
|
|
|
|
1,657,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' capital
|
|
|
|
|
|
|
|
|
7
|
|
|
|
1,580,314
|
|
|
|
1,481,345
|
Contributed surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
41,442
|
|
|
|
69,581
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,786)
|
|
|
|
(32,409)
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,732)
|
|
|
|
(99,871)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,535,238
|
|
|
|
1,418,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,299,007
|
|
|
|
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
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
Note
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and natural gas sales
|
|
|
|
|
|
|
|
311,966
|
|
|
246,544
|
|
|
621,542
|
|
|
557,032
|
Royalties
|
|
|
|
|
|
|
|
(15,800)
|
|
|
(13,331)
|
|
|
(31,590)
|
|
|
(27,783)
|
Petroleum and natural gas revenue
|
|
|
|
|
|
|
|
296,166
|
|
|
233,213
|
|
|
589,952
|
|
|
529,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
48,082
|
|
|
40,225
|
|
|
100,657
|
|
|
87,778
|
Transportation
|
|
|
|
|
|
|
|
6,653
|
|
|
6,218
|
|
|
13,294
|
|
|
12,911
|
Equity based compensation
|
|
|
|
8
|
|
|
|
10,724
|
|
|
9,861
|
|
|
26,860
|
|
|
19,916
|
Gain on derivative instruments
|
|
|
|
|
|
|
|
(10,421)
|
|
|
(16,424)
|
|
|
(6,521)
|
|
|
(2,367)
|
Interest expense
|
|
|
|
|
|
|
|
9,336
|
|
|
6,600
|
|
|
18,025
|
|
|
12,701
|
General and administration
|
|
|
|
|
|
|
|
11,313
|
|
|
12,068
|
|
|
23,923
|
|
|
22,216
|
Foreign exchange (gain) loss
|
|
|
|
|
|
|
|
(29,297)
|
|
|
15,975
|
|
|
(26,161)
|
|
|
11,548
|
Other expense
|
|
|
|
|
|
|
|
271
|
|
|
585
|
|
|
204
|
|
|
8,568
|
Accretion
|
|
|
|
5
|
|
|
|
6,000
|
|
|
5,792
|
|
|
11,824
|
|
|
11,030
|
Depletion and depreciation
|
|
|
|
3, 4
|
|
|
|
78,418
|
|
|
76,512
|
|
|
159,866
|
|
|
152,360
|
Impairments
|
|
|
|
3
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,800
|
Gain on acquisition
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(45,309)
|
|
|
|
|
|
|
|
|
131,079
|
|
|
157,412
|
|
|
321,971
|
|
|
357,152
|
EARNINGS BEFORE INCOME TAXES
|
|
|
|
|
|
|
|
165,087
|
|
|
75,801
|
|
|
267,981
|
|
|
172,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
9,580
|
|
|
300
|
|
|
13,627
|
|
|
(28,131)
|
Current
|
|
|
|
|
|
|
|
49,309
|
|
|
37,685
|
|
|
96,019
|
|
|
97,318
|
|
|
|
|
|
|
|
|
58,889
|
|
|
37,985
|
|
|
109,646
|
|
|
69,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
|
|
|
|
|
106,198
|
|
|
37,816
|
|
|
158,335
|
|
|
102,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
18,955
|
|
|
(16,411)
|
|
|
17,623
|
|
|
(9,030)
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
125,153
|
|
|
21,405
|
|
|
175,958
|
|
|
93,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
1.05
|
|
|
0.39
|
|
|
1.58
|
|
|
1.06
|
Diluted
|
|
|
|
|
|
|
|
1.04
|
|
|
0.38
|
|
|
1.56
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING ('000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
100,964
|
|
|
97,937
|
|
|
100,137
|
|
|
97,291
|
Diluted
|
|
|
|
|
|
|
|
102,223
|
|
|
99,923
|
|
|
101,578
|
|
|
99,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
Note
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
OPERATING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
106,198
|
|
|
37,816
|
|
|
158,335
|
|
|
102,910
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
|
5
|
|
|
|
6,000
|
|
|
5,792
|
|
|
11,824
|
|
|
11,030
|
Depletion and depreciation
|
|
|
|
3, 4
|
|
|
|
78,418
|
|
|
76,512
|
|
|
159,866
|
|
|
152,360
|
Impairments
|
|
|
|
3
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,800
|
Gain on acquisition
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(45,309)
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
(8,651)
|
|
|
(20,015)
|
|
|
(7,538)
|
|
|
(11,676)
|
Equity based compensation
|
|
|
|
8
|
|
|
|
10,724
|
|
|
9,861
|
|
|
26,860
|
|
|
19,916
|
Unrealized foreign exchange (gain) loss
|
|
|
|
|
|
|
|
(28,025)
|
|
|
16,730
|
|
|
(25,506)
|
|
|
11,483
|
Unrealized other expense
|
|
|
|
|
|
|
|
348
|
|
|
779
|
|
|
753
|
|
|
514
|
Deferred taxes
|
|
|
|
|
|
|
|
9,580
|
|
|
300
|
|
|
13,627
|
|
|
(28,131)
|
Asset retirement obligations settled
|
|
|
|
5
|
|
|
|
(2,370)
|
|
|
(2,581)
|
|
|
(3,758)
|
|
|
(3,347)
|
Changes in non-cash operating working capital
|
|
|
|
|
|
|
|
6,852
|
|
|
(1,709)
|
|
|
35,323
|
|
|
(27,178)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
179,074
|
|
|
123,485
|
|
|
369,786
|
|
|
248,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and development
|
|
|
|
3
|
|
|
|
(75,005)
|
|
|
(77,956)
|
|
|
(254,525)
|
|
|
(165,852)
|
Exploration and evaluation
|
|
|
|
4
|
|
|
|
(3,113)
|
|
|
(16,932)
|
|
|
(12,689)
|
|
|
(23,396)
|
Property acquisitions
|
|
|
|
3
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(106,184)
|
Dispositions
|
|
|
|
3
|
|
|
|
-
|
|
|
-
|
|
|
8,627
|
|
|
-
|
Changes in non-cash investing working capital
|
|
|
|
|
|
|
|
(75,613)
|
|
|
(23,030)
|
|
|
(37,403)
|
|
|
(29,784)
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
(153,731)
|
|
|
(117,918)
|
|
|
(295,990)
|
|
|
(325,216)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in long-term debt
|
|
|
|
|
|
|
|
70,000
|
|
|
76,774
|
|
|
139,429
|
|
|
76,774
|
Issuance of shares pursuant to the dividend reinvestment plan
|
|
|
|
|
|
|
|
-
|
|
|
18,781
|
|
|
-
|
|
|
36,339
|
Cash dividends
|
|
|
|
|
|
|
|
(41,754)
|
|
|
(55,678)
|
|
|
(84,778)
|
|
|
(110,725)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
28,246
|
|
|
39,877
|
|
|
54,651
|
|
|
2,388
|
Foreign exchange gain (loss) on cash held in foreign currencies
|
|
|
|
|
|
|
|
5,496
|
|
|
(2,608)
|
|
|
5,026
|
|
|
(2,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
59,085
|
|
|
42,836
|
|
|
133,473
|
|
|
(77,034)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
176,513
|
|
|
114,637
|
|
|
102,125
|
|
|
234,507
|
Cash and cash equivalents, end of period
|
|
|
|
|
|
|
|
235,598
|
|
|
157,473
|
|
|
235,598
|
|
|
157,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information for operating activities - cash payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
|
8,417
|
|
|
4,419
|
|
|
20,509
|
|
|
13,926
|
Income taxes paid
|
|
|
|
|
|
|
|
18,669
|
|
|
84,012
|
|
|
51,304
|
|
|
103,711
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102,910
|
|
|
|
102,910
|
Currency translation adjustments
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,030)
|
|
|
|
-
|
|
|
|
(9,030)
|
Equity based compensation expense
|
|
|
|
|
|
|
|
-
|
|
|
|
19,280
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,280
|
Dividends declared
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(111,086)
|
|
|
|
(111,086)
|
Issuance of shares pursuant to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan
|
|
|
|
7
|
|
|
|
36,339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,339
|
Vesting of equity based awards
|
|
|
|
7, 8
|
|
|
|
33,356
|
|
|
|
(33,356)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
Share-settled dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on vested equity based awards
|
|
|
|
7, 8
|
|
|
|
7,116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,116)
|
|
|
|
-
|
Shares issued pursuant to the bonus plan
|
|
|
|
7
|
|
|
|
636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
636
|
Balances as at June 30, 2012
|
|
|
|
|
|
|
|
1,445,592
|
|
|
|
42,392
|
|
|
|
(42,417)
|
|
|
|
(74,917)
|
|
|
|
1,370,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,335
|
|
|
|
158,335
|
Currency translation adjustments
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,623
|
|
|
|
-
|
|
|
|
17,623
|
Equity based compensation expense
|
|
|
|
|
|
|
|
-
|
|
|
|
26,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,231
|
Dividends declared
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(120,388)
|
|
|
|
(120,388)
|
Issuance of shares pursuant to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan
|
|
|
|
7
|
|
|
|
34,162
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,162
|
Vesting of equity based awards
|
|
|
|
7, 8
|
|
|
|
54,370
|
|
|
|
(54,370)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
Share-settled dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on vested equity based awards
|
|
|
|
7, 8
|
|
|
|
9,808
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,808)
|
|
|
|
-
|
Shares issued pursuant to the bonus plan
|
|
|
|
7
|
|
|
|
629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
629
|
Balances as at June 30, 2013
|
|
|
|
|
|
|
|
1,580,314
|
|
|
|
41,442
|
|
|
|
(14,786)
|
|
|
|
(71,732)
|
|
|
|
1,535,238
|
DESCRIPTION OF EQUITY RESERVES
Shareholders' capital
Represents the recognized amount for common shares when issued, net of
equity issuance costs and deferred taxes.
Contributed surplus
Represents the recognized value of employee awards which are settled in
shares. Once vested, the value of the awards is transferred to
shareholders' capital.
Accumulated other comprehensive loss
Represents the cumulative income and expenses which are not recorded
immediately in net earnings and are accumulated until an event triggers
recognition in net earnings. The current balance consists of currency
translation adjustments resulting from translating financial statements
of subsidiaries with a foreign functional currency to Canadian dollars
at period-end rates.
Retained earnings (deficit)
Represents the cumulative net earnings less distributed earnings of
Vermilion Energy Inc.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER
SHARE AMOUNTS, UNAUDITED)
1. BASIS OF PRESENTATION
Vermilion Energy Inc. (the "Company" or "Vermilion") is a corporation
governed by the laws of the Province of Alberta and is actively engaged
in the business of crude oil and natural gas exploration, development,
acquisition and production.
These condensed consolidated interim financial statements are in
compliance with IAS 34, "Interim financial reporting" and have been
prepared using the same accounting policies and methods of computation
as Vermilion's consolidated financial statements for the year ended
December 31, 2012, except as discussed in Note 2.
These condensed consolidated interim financial statements should be read
in conjunction with Vermilion's consolidated financial statements for
the year ended December 31, 2012, which are contained within
Vermilion's Annual Report for the year ended December 31, 2012 and are
available on SEDAR at www.sedar.com or on Vermilion's website at www.vermilionenergy.com.
These condensed consolidated interim financial statements were approved
and authorized for issuance by the Board of Directors of Vermilion on
July 31, 2013.
2. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2013, Vermilion adopted the following pronouncements as
issued by the IASB. The adoption of these standards did not have a
material impact on Vermilion's consolidated financial statements.
IFRS 10 "Consolidated Financial Statements"
IFRS 10 replaced Standing Interpretations Committee 12, "Consolidation -
Special Purpose Entities" and the consolidation requirements of IAS 27
"Consolidated and Separate Financial Statements". The new standard
replaces the existing risk and rewards based approaches and establishes
control as the determining factor when determining whether an interest
in another entity should be included in the consolidated financial
statements.
IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". The new standard
focuses on the rights and obligations of an arrangement, rather than
its legal form. The standard redefines joint operations and joint
ventures and requires joint operations to be proportionately
consolidated and joint ventures to be equity accounted.
IFRS 12 "Disclosure of Interests in Other Entities"
IFRS 12 provides comprehensive disclosure requirements 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
|
|
|
|
|
(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
|
|
|
|
|
252,454
|
|
|
|
2,071
|
|
|
254,525
|
Dispositions
|
|
|
|
|
(8,627)
|
|
|
|
-
|
|
|
(8,627)
|
Changes in estimate for asset retirement obligations
|
|
|
|
|
(25,774)
|
|
|
|
-
|
|
|
(25,774)
|
Depletion and depreciation
|
|
|
|
|
(152,433)
|
|
|
|
(3,363)
|
|
|
(155,796)
|
Effect of movements in foreign exchange rates
|
|
|
|
|
36,628
|
|
|
|
102
|
|
|
36,730
|
Balance at June 30, 2013
|
|
|
|
|
2,532,369
|
|
|
|
13,929
|
|
|
2,546,298
|
4. EXPLORATION AND EVALUATION ASSETS
The following table reconciles the change in Vermilion's exploration and
evaluation assets:
($M)
|
|
|
|
|
|
|
|
|
|
|
Exploration and Evaluation Assets
|
Balance at January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
92,301
|
Additions
|
|
|
|
|
|
|
|
|
|
|
39,317
|
Transfers to petroleum and natural gas assets
|
|
|
|
|
|
|
|
|
|
|
(10,528)
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(3,485)
|
Effect of movements in foreign exchange rates
|
|
|
|
|
|
|
|
|
|
|
(444)
|
Balance at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
117,161
|
Additions
|
|
|
|
|
|
|
|
|
|
|
12,689
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
(1,810)
|
Effect of movements in foreign exchange rates
|
|
|
|
|
|
|
|
|
|
|
531
|
Balance at June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
128,571
|
5. ASSET RETIREMENT OBLIGATIONS
The following table reconciles the change in Vermilion's asset
retirement obligations:
($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
|
|
|
|
|
|
|
|
|
|
|
1,420
|
Obligations settled
|
|
|
|
|
|
|
|
|
|
|
(3,758)
|
Accretion
|
|
|
|
|
|
|
|
|
|
|
11,824
|
Changes in discount rates
|
|
|
|
|
|
|
|
|
|
|
(27,194)
|
Effect of movements in foreign exchange rates
|
|
|
|
|
|
|
|
|
|
|
5,513
|
Balance at June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
358,868
|
6. LONG-TERM DEBT
The following table summarizes Vermilion's outstanding long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As At
|
($M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
Dec 31, 2012
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,788
|
|
|
|
419,784
|
Senior unsecured notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,682
|
|
|
|
222,238
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780,470
|
|
|
|
642,022
|
Revolving Credit Facility
At June 30, 2013, Vermilion had in place a bank revolving credit
facility totalling $1.2 billion, of which approximately $557.8 million
was drawn. The facility, which matures on May 31, 2016, is fully
revolving up to the date of maturity.
The facility is extendable from time to time, but not more than once per
year, for a period not longer than three years, at the option of the
lenders and upon notice from Vermilion. If no extension is granted by
the lenders, the amounts owing pursuant to the facility are repayable
on the maturity date. This facility bears interest at a rate
applicable to demand loans plus applicable margins.
The amount available to Vermilion under this facility is reduced by
outstanding letters of credit associated with Vermilion's operations
totalling $51.3 million as at June 30, 2013 (December 31, 2012 - $49.2
million).
The facility is secured by various fixed and floating charges against
the subsidiaries of Vermilion. Under the terms of the facility,
Vermilion must maintain a ratio of total bank borrowings (defined as
consolidated total debt), to consolidated net earnings before interest,
income taxes, depreciation, accretion and other certain non-cash items
(defined as consolidated EBITDA) of not greater than 4.0. In addition,
Vermilion must maintain a ratio of consolidated total senior debt
(defined as consolidated total debt excluding unsecured and
subordinated debt) to consolidated EBITDA of not greater than 3.0.
As at June 30, 2013, Vermilion was in compliance with its financial
covenants.
Senior Unsecured Notes
On February 10, 2011, Vermilion issued $225.0 million of senior
unsecured notes at par. The notes bear interest at a rate of 6.5% per
annum and will mature on February 10, 2016. As direct senior unsecured
obligations of Vermilion, the notes rank pari passu with all other
present and future unsecured and unsubordinated indebtedness of the
Company.
Vermilion may, at its option, prior to February 10, 2014, redeem up to
35% of the notes with net proceeds of equity offerings by the Company
at a redemption price equal to 106.5% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
applicable redemption date. Subsequently, Vermilion may, on or after
February 10, 2014, redeem all or part of the notes at fixed redemption
prices, plus, in each case, accrued and unpaid interest, if any, to the
applicable redemption date. The notes were initially recognized at
fair value net of transaction costs and are subsequently measured at
amortized cost using an effective interest rate of 7.1%.
7. SHAREHOLDERS' CAPITAL
The following tables reconcile the change in Vermilion's shareholders'
capital:
Shareholders' Capital
|
|
|
|
|
|
|
|
|
Number of Shares ('000s)
|
|
|
|
Amount ($M)
|
Balance as at January 1, 2012
|
|
|
|
|
|
|
|
|
96,430
|
|
|
|
1,368,145
|
Issuance of shares pursuant to the dividend reinvestment plan
|
|
|
|
|
|
|
|
|
1,631
|
|
|
|
72,058
|
Vesting of equity based awards
|
|
|
|
|
|
|
|
|
904
|
|
|
|
33,355
|
Share-settled dividends on vested equity based awards
|
|
|
|
|
|
|
|
|
157
|
|
|
|
7,151
|
Shares issued pursuant to the bonus plan
|
|
|
|
|
|
|
|
|
13
|
|
|
|
636
|
Balance as at December 31, 2012
|
|
|
|
|
|
|
|
|
99,135
|
|
|
|
1,481,345
|
Issuance of shares pursuant to the dividend reinvestment plan
|
|
|
|
|
|
|
|
|
697
|
|
|
|
34,162
|
Vesting of equity based awards
|
|
|
|
|
|
|
|
|
1,372
|
|
|
|
54,370
|
Share-settled dividends on vested equity based awards
|
|
|
|
|
|
|
|
|
202
|
|
|
|
9,808
|
Shares issued pursuant to the bonus plan
|
|
|
|
|
|
|
|
|
12
|
|
|
|
629
|
Balance as at June 30, 2013
|
|
|
|
|
|
|
|
|
101,418
|
|
|
|
1,580,314
|
Dividends declared to shareholders for the six months ended June 30,
2013 were $120.4 million.
Subsequent to the end of the period and prior to the condensed
consolidated interim financial statements being authorized for issue on
July 31, 2013, Vermilion declared dividends totalling $20.3 million or
$0.20 per share.
8. EQUITY BASED COMPENSATION
The following table summarizes the number of awards outstanding under
the Vermilion Incentive Plan ("VIP"):
Number of Awards ('000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
Opening balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,690
|
|
|
|
1,750
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
|
|
681
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(749)
|
|
|
|
(596)
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73)
|
|
|
|
(145)
|
Closing balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,580
|
|
|
|
1,690
|
The fair value of a VIP award is determined on the grant date at the
closing price of Vermilion's common shares on the Toronto Stock
Exchange, adjusted by the estimated performance factor that will
ultimately be achieved. Dividends, which notionally accrue to the
awards during the vesting period, are not included in the determination
of grant date fair values.
9. SEGMENTED INFORMATION
The following segment information has been prepared by segregating the
results into the geographic areas in which Vermilion operates. The
following amounts include transactions between segments, which are
recorded at fair value at the date of recognition.
|
|
|
|
Three Months Ended June 30, 2013
|
($M)
|
|
|
|
Canada
|
|
|
|
France
|
|
|
Netherlands
|
|
|
Australia
|
|
|
Ireland
|
|
|
Total
|
Drilling and development
|
|
|
|
14,465
|
|
|
|
23,223
|
|
|
4,157
|
|
|
8,282
|
|
|
24,878
|
|
|
75,005
|
Exploration and evaluation
|
|
|
|
3,113
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
|
|
|
100,950
|
|
|
|
100,418
|
|
|
38,316
|
|
|
72,282
|
|
|
-
|
|
|
311,966
|
Royalties
|
|
|
|
(9,707)
|
|
|
|
(6,093)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,800)
|
Revenue from external customers
|
|
|
|
91,243
|
|
|
|
94,325
|
|
|
38,316
|
|
|
72,282
|
|
|
-
|
|
|
296,166
|
Realized gain (loss) on derivative instruments
|
|
|
|
360
|
|
|
|
1,411
|
|
|
(1)
|
|
|
-
|
|
|
-
|
|
|
1,770
|
Transportation expense
|
|
|
|
(2,611)
|
|
|
|
(2,416)
|
|
|
-
|
|
|
-
|
|
|
(1,626)
|
|
|
(6,653)
|
Operating expense
|
|
|
|
(15,975)
|
|
|
|
(16,935)
|
|
|
(5,260)
|
|
|
(9,912)
|
|
|
-
|
|
|
(48,082)
|
Operating income (loss)
|
|
|
|
73,017
|
|
|
|
76,385
|
|
|
33,055
|
|
|
62,370
|
|
|
(1,626)
|
|
|
243,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
|
|
|
328
|
|
|
|
16,124
|
|
|
9,621
|
|
|
10,646
|
|
|
-
|
|
|
36,719
|
PRRT
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
12,590
|
|
|
-
|
|
|
12,590
|
Current income taxes
|
|
|
|
328
|
|
|
|
16,124
|
|
|
9,621
|
|
|
23,236
|
|
|
-
|
|
|
49,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012
|
($M)
|
|
|
|
Canada
|
|
|
|
France
|
|
|
Netherlands
|
|
|
Australia
|
|
|
Ireland
|
|
|
Total
|
Drilling and development
|
|
|
|
38,476
|
|
|
|
10,281
|
|
|
5,427
|
|
|
9,867
|
|
|
13,905
|
|
|
77,956
|
Exploration and evaluation
|
|
|
|
16,980
|
|
|
|
-
|
|
|
(48)
|
|
|
-
|
|
|
-
|
|
|
16,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
|
|
|
74,932
|
|
|
|
94,828
|
|
|
30,062
|
|
|
46,722
|
|
|
-
|
|
|
246,544
|
Royalties
|
|
|
|
(8,216)
|
|
|
|
(5,115)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13,331)
|
Revenue from external customers
|
|
|
|
66,716
|
|
|
|
89,713
|
|
|
30,062
|
|
|
46,722
|
|
|
-
|
|
|
233,213
|
Realized loss on derivative instruments
|
|
|
|
(423)
|
|
|
|
(3,000)
|
|
|
-
|
|
|
(168)
|
|
|
-
|
|
|
(3,591)
|
Transportation expense
|
|
|
|
(2,350)
|
|
|
|
(1,894)
|
|
|
-
|
|
|
-
|
|
|
(1,974)
|
|
|
(6,218)
|
Operating expense
|
|
|
|
(13,217)
|
|
|
|
(13,755)
|
|
|
(5,457)
|
|
|
(7,796)
|
|
|
-
|
|
|
(40,225)
|
Operating income (loss)
|
|
|
|
50,726
|
|
|
|
71,064
|
|
|
24,605
|
|
|
38,758
|
|
|
(1,974)
|
|
|
183,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
|
|
|
845
|
|
|
|
15,725
|
|
|
5,875
|
|
|
6,780
|
|
|
-
|
|
|
29,225
|
PRRT
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
8,460
|
|
|
-
|
|
|
8,460
|
Current income taxes
|
|
|
|
845
|
|
|
|
15,725
|
|
|
5,875
|
|
|
15,240
|
|
|
-
|
|
|
37,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013
|
($M)
|
|
|
|
Canada
|
|
|
|
France
|
|
|
Netherlands
|
|
|
Australia
|
|
|
Ireland
|
|
|
Total
|
Total assets
|
|
|
|
1,325,667
|
|
|
|
873,242
|
|
|
142,317
|
|
|
311,415
|
|
|
646,366
|
|
|
3,299,007
|
Drilling and development
|
|
|
|
98,525
|
|
|
|
44,815
|
|
|
6,156
|
|
|
63,631
|
|
|
41,398
|
|
|
254,525
|
Exploration and evaluation
|
|
|
|
12,689
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
|
|
|
184,638
|
|
|
|
221,984
|
|
|
72,737
|
|
|
142,183
|
|
|
-
|
|
|
621,542
|
Royalties
|
|
|
|
(18,696)
|
|
|
|
(12,894)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(31,590)
|
Revenue from external customers
|
|
|
|
165,942
|
|
|
|
209,090
|
|
|
72,737
|
|
|
142,183
|
|
|
-
|
|
|
589,952
|
Realized gain (loss) on derivative instruments
|
|
|
|
597
|
|
|
|
(608)
|
|
|
(1)
|
|
|
(1,005)
|
|
|
-
|
|
|
(1,017)
|
Transportation expense
|
|
|
|
(4,880)
|
|
|
|
(5,170)
|
|
|
-
|
|
|
-
|
|
|
(3,244)
|
|
|
(13,294)
|
Operating expense
|
|
|
|
(29,816)
|
|
|
|
(36,874)
|
|
|
(9,229)
|
|
|
(24,738)
|
|
|
-
|
|
|
(100,657)
|
Operating income (loss)
|
|
|
|
131,843
|
|
|
|
166,438
|
|
|
63,507
|
|
|
116,440
|
|
|
(3,244)
|
|
|
474,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
|
|
|
579
|
|
|
|
34,783
|
|
|
19,055
|
|
|
17,859
|
|
|
-
|
|
|
72,276
|
PRRT
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
23,743
|
|
|
-
|
|
|
23,743
|
Current income taxes
|
|
|
|
579
|
|
|
|
34,783
|
|
|
19,055
|
|
|
41,602
|
|
|
-
|
|
|
96,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2012
|
($M)
|
|
|
|
Canada
|
|
|
|
France
|
|
|
Netherlands
|
|
|
Australia
|
|
|
Ireland
|
|
|
Total
|
Total assets
|
|
|
|
1,170,481
|
|
|
|
701,189
|
|
|
142,612
|
|
|
285,474
|
|
|
516,377
|
|
|
2,816,133
|
Drilling and development
|
|
|
|
104,022
|
|
|
|
16,008
|
|
|
7,900
|
|
|
14,411
|
|
|
23,511
|
|
|
165,852
|
Exploration and evaluation
|
|
|
|
23,347
|
|
|
|
-
|
|
|
49
|
|
|
-
|
|
|
-
|
|
|
23,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
|
|
|
155,458
|
|
|
|
198,339
|
|
|
61,882
|
|
|
141,353
|
|
|
-
|
|
|
557,032
|
Royalties
|
|
|
|
(17,185)
|
|
|
|
(10,598)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(27,783)
|
Revenue from external customers
|
|
|
|
138,273
|
|
|
|
187,741
|
|
|
61,882
|
|
|
141,353
|
|
|
-
|
|
|
529,249
|
Realized loss on derivative instruments
|
|
|
|
(1,061)
|
|
|
|
(7,914)
|
|
|
-
|
|
|
(334)
|
|
|
-
|
|
|
(9,309)
|
Transportation expense
|
|
|
|
(4,394)
|
|
|
|
(4,542)
|
|
|
-
|
|
|
-
|
|
|
(3,975)
|
|
|
(12,911)
|
Operating expense
|
|
|
|
(27,484)
|
|
|
|
(28,857)
|
|
|
(9,566)
|
|
|
(21,871)
|
|
|
-
|
|
|
(87,778)
|
Operating income (loss)
|
|
|
|
105,334
|
|
|
|
146,428
|
|
|
52,316
|
|
|
119,148
|
|
|
(3,975)
|
|
|
419,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
|
|
|
1,287
|
|
|
|
28,620
|
|
|
14,932
|
|
|
16,750
|
|
|
-
|
|
|
61,589
|
PRRT
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
35,729
|
|
|
-
|
|
|
35,729
|
Current income taxes
|
|
|
|
1,287
|
|
|
|
28,620
|
|
|
14,932
|
|
|
52,479
|
|
|
-
|
|
|
97,318
|
Reconciliation of operating income to net earnings
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
($M)
|
|
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
Operating income
|
|
|
|
|
|
243,201
|
|
|
183,179
|
|
|
474,984
|
|
|
419,251
|
Equity based compensation
|
|
|
|
|
|
(10,724)
|
|
|
(9,861)
|
|
|
(26,860)
|
|
|
(19,916)
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
8,651
|
|
|
20,015
|
|
|
7,538
|
|
|
11,676
|
Interest expense
|
|
|
|
|
|
(9,336)
|
|
|
(6,600)
|
|
|
(18,025)
|
|
|
(12,701)
|
General and administration
|
|
|
|
|
|
(11,313)
|
|
|
(12,068)
|
|
|
(23,923)
|
|
|
(22,216)
|
Foreign exchange gain (loss)
|
|
|
|
|
|
29,297
|
|
|
(15,975)
|
|
|
26,161
|
|
|
(11,548)
|
Other expense
|
|
|
|
|
|
(271)
|
|
|
(585)
|
|
|
(204)
|
|
|
(8,568)
|
Accretion
|
|
|
|
|
|
(6,000)
|
|
|
(5,792)
|
|
|
(11,824)
|
|
|
(11,030)
|
Depletion and depreciation
|
|
|
|
|
|
(78,418)
|
|
|
(76,512)
|
|
|
(159,866)
|
|
|
(152,360)
|
Impairments
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(65,800)
|
Gain on acquisition
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,309
|
Earnings before income taxes
|
|
|
|
|
|
165,087
|
|
|
75,801
|
|
|
267,981
|
|
|
172,097
|
Income taxes
|
|
|
|
|
|
(58,889)
|
|
|
(37,985)
|
|
|
(109,646)
|
|
|
(69,187)
|
Net earnings
|
|
|
|
|
|
106,198
|
|
|
37,816
|
|
|
158,335
|
|
|
102,910
|
10. CAPITAL DISCLOSURES
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
($M except as indicated)
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
Long-term debt
|
|
|
|
780,470
|
|
|
452,267
|
|
|
780,470
|
|
|
452,267
|
Current liabilities
|
|
|
|
325,912
|
|
|
397,483
|
|
|
325,912
|
|
|
397,483
|
Current assets
|
|
|
|
(432,014)
|
|
|
(325,140)
|
|
|
(432,014)
|
|
|
(325,140)
|
Net debt [1]
|
|
|
|
674,368
|
|
|
524,610
|
|
|
674,368
|
|
|
524,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
179,074
|
|
|
123,485
|
|
|
369,786
|
|
|
248,372
|
Changes in non-cash operating working capital
|
|
|
|
(6,852)
|
|
|
1,709
|
|
|
(35,323)
|
|
|
27,178
|
Asset retirement obligations settled
|
|
|
|
2,370
|
|
|
2,581
|
|
|
3,758
|
|
|
3,347
|
Fund flows from operations
|
|
|
|
174,592
|
|
|
127,775
|
|
|
338,221
|
|
|
278,897
|
Annualized fund flows from operations [2]
|
|
|
|
698,368
|
|
|
511,100
|
|
|
676,442
|
|
|
557,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net debt to annualized fund flows from operations ([1] ÷ [2])
|
|
|
|
1.0
|
|
|
1.0
|
|
|
1.0
|
|
|
0.9
|
The ratio of net debt to annualized fund flows from operations for the
three and six months ended June 30, 2013 was relatively consistent with
same periods in 2012 as fund flows from operations increased
proportionately with net debt. The increase in net debt was the result
of the second of two acquisitions that occurred in France during 2012
and capital expenditures pertaining to the Ireland assets, which are
currently under development.
Vermilion is subject to certain externally imposed capital requirements
under its revolving credit facility. During the periods covered by
these consolidated financial statements, Vermilion continued to comply
with these requirements.
11. FINANCIAL INSTRUMENTS
Classification of Financial Instruments
The following table summarizes information relating to Vermilion's
financial instruments as at June 30, 2013 and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 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
(gain) loss
|
|
|
235,598
|
|
235,598
|
|
|
102,125
|
|
102,125
|
|
|
Level 1
|
Receivables
|
|
|
Accounts receivable
|
|
|
LAR
|
|
|
Gains and losses on foreign exchange are included in foreign exchange
(gain) loss and impairments are recognized as general and
administration expense
|
|
|
160,425
|
|
160,425
|
|
|
180,064
|
|
180,064
|
|
|
Not applicable
|
Derivative assets
|
|
|
Derivative instruments
|
|
|
HFT
|
|
|
Gain on derivative instruments
|
|
|
2,149
|
|
2,149
|
|
|
2,086
|
|
2,086
|
|
|
Level 2
|
Derivative liabilities
|
|
|
Derivative instruments
|
|
|
HFT
|
|
|
Gain on derivative instruments
|
|
|
(1,009)
|
|
(1,009)
|
|
|
(8,484)
|
|
(8,484)
|
|
|
Level 2
|
Payables
|
|
|
Accounts payable and accrued liabilities
|
|
|
OTH
|
|
|
Gains and losses on foreign exchange are included in foreign exchange
(gain) loss
|
|
|
(252,533)
|
|
(252,533)
|
|
|
(319,518)
|
|
(319,518)
|
|
|
Not applicable
|
|
|
|
|
|
|
Dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
Long-term debt
|
|
|
OTH
|
|
|
Interest expense
|
|
|
(780,470)
|
|
(787,288)
|
|
|
(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 six months ended June 30, 2013 given
changes in the relevant risk variables that Vermilion considers were
reasonably possible at the balance sheet date. The impact on
comprehensive income before tax associated with changes in these risk
variables for assets and liabilities that are not considered financial
instruments are excluded from this analysis. This analysis does not
attempt to reflect any interdependencies between the relevant risk
variables.
|
|
|
|
|
|
June 30, 2013
|
|
|
|
|
Before tax effect on comprehensive income
|
Risk ($M)
|
|
|
|
Description of change in risk variable
|
|
Increase (decrease)
|
Currency risk - Euro to Canadian
|
|
|
|
Increase in strength of the Canadian dollar against the
|
|
(4,128)
|
|
|
|
|
Euro by 5% over the relevant closing rates on June 30, 2013
|
|
|
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
4,128
|
|
|
|
|
Euro by 5% over the relevant closing rates on June 30, 2013
|
|
|
Currency risk - US $ to Canadian
|
|
|
|
Increase in strength of the Canadian dollar against the
|
|
(4,953)
|
|
|
|
|
US$ by 5% over the relevant closing rates on June 30, 2013
|
|
|
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
4,953
|
|
|
|
|
US$ by 5% over the relevant closing rates on June 30, 2013
|
|
|
Currency risk - AUD $ to Canadian
|
|
|
|
Increase in strength of the Canadian dollar against the
|
|
(261)
|
|
|
|
|
AUD$ by 5% over the relevant closing rates on June 30, 2013
|
|
|
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
261
|
|
|
|
|
AUD$ by 5% over the relevant closing rates on June 30, 2013
|
|
|
Commodity price risk
|
|
|
|
Increase in relevant oil reference price within option pricing models used to
|
|
(6,067)
|
|
|
|
|
determine the fair value of financial derivative positions by
US$5.00/bbl at June 30, 2013
|
|
|
|
|
|
|
Decrease in relevant oil reference price within option pricing models used to
|
|
5,923
|
|
|
|
|
determine the fair value of financial derivative positions by
US$5.00/bbl at June 30, 2013
|
|
|
Interest rate risk
|
|
|
|
Increase in average Canadian prime interest rate
|
|
(2,250)
|
|
|
|
|
by 100 basis points during the six months ended June 30, 2013
|
|
|
|
|
|
|
Decrease in average Canadian prime interest rate
|
|
2,250
|
|
|
|
|
by 100 basis points during the six months ended June 30, 2013
|
|
|
|
|
|
|
|
SOURCE: Vermilion Energy Inc.