Exhibit 99.1
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", "project", 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; operational and financial performance; estimated reserve quantities and the discounted net present value of future net revenue 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 and amount of future dividends; royalty and income tax rates; and the timing of regulatory proceedings and approvals.
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 position 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 and estimates of resources and associated expenditures; 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.
This document contains metrics commonly used in the oil and gas industry. These oil and gas metrics do not have any standardized meaning or standard methods of calculation and therefore may not be comparable to similar measures presented by other companies where similar terminology is used and should therefore not be used to make comparisons. 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.
Vermilion Energy Inc. ■ Page 1 ■ 2021 Third Quarter Report |
Abbreviations
$M | thousand dollars |
$MM | million dollars |
AECO | the daily average benchmark price for natural gas at the AECO ‘C’ hub in Alberta |
bbl(s) | barrel(s) |
bbls/d | barrels per day |
boe | barrel of oil equivalent, including: crude oil, condensate, natural gas liquids, and natural gas (converted on the basis of one boe for six mcf of natural gas) |
boe/d | barrel of oil equivalent per day |
GJ | gigajoules |
LSB | light sour blend crude oil reference price |
mbbls | thousand barrels |
mcf | thousand cubic feet |
mmcf/d | million cubic feet per day |
NBP | the reference price paid for natural gas in the United Kingdom at the National Balancing Point Virtual Trading Point. |
NGLs | natural gas liquids, which includes butane, propane, and ethane |
PRRT | Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia |
tCO2e | tonnes of carbon dioxide equivalent |
TTF | the price for natural gas in the Netherlands, quoted in megawatt hours of natural gas, at the Title Transfer Facility Virtual Trading Point |
WTI | West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma |
Vermilion Energy Inc. ■ Page 2 ■ 2021 Third Quarter Report |
Highlights
• | Fund flows from operations ("FFO") was $263 million in Q3 2021, an increase of 52% from the prior quarter. The increase was primarily due to higher commodity prices. |
• | E&D capital expenditures were $66 million in the quarter, resulting in $196 million of free cash flow (“FCF”)(1) and a payout ratio of 27% including reclamation and abandonment expenditures. |
• | Through the first nine months of 2021 we have generated $369 million of FCF and have reduced net debt by $231 million while also funding acquisitions to benefit future FCF deliverability. Based on the forward commodity strip, we expect to generate in excess of $500 million, or over $3.00 per share, of FCF in 2021 and exit the year with net debt forecast to be in the range of $1.65 billion, implying a net debt to trailing FFO ratio of approximately 1.8 times. |
• | Production in Q3 2021 averaged 84,633 boe/d(2), which was down slightly from the previous quarter primarily due to planned maintenance activity in Canada and Ireland, partially offset by higher production in the Netherlands, Germany, Australia and the United States, including the contribution from a small bolt-on acquisition in the Powder River Basin. |
• | Production from our North American assets averaged 57,022 boe/d in Q3 2021, a decrease of 2% from the prior quarter primarily due to planned and unplanned downtime in Canada, which was partially offset by strong performance from our United States business unit, including the acquisition noted above. |
• | In Canada, we continued with our two-rig drilling program in south-east Saskatchewan where we drilled 19 (19.0 net) wells and completed 20 (19.5 net) wells in the quarter. Activity in Alberta was primarily focused on plant turnarounds and maintenance and preparing for our Q4 2021 condensate-rich Mannville gas drilling program. |
• | In the United States, we completed and brought on production the remaining two (2.0 net) wells from our four (4.0 net) well Q2 2021 drilling program. With our growing knowledge of the Turner play, we were able to identify and execute a strategic acquisition during Q3 2021. The acquisition includes 20,000 net acres of land adjacent to our Hilight field in Wyoming with current production of approximately 1,500 boe/d (72% liquids). We have identified up to 40 drilling locations in the Turner sands along with longer-term resource potential from the emerging Niobrara and Parkman formations. Total consideration for the acquisition was US$76 million which was funded through our credit facility. |
• | Production from our International assets averaged 27,612 boe/d in Q3 2021, a decrease of 1% from the prior quarter primarily due to a planned turnaround in Ireland, which was partially offset by strong performance from the Netherlands, Germany and Australia. |
• | In the Netherlands, the Nijega well (1.0 net) was tied in during the third quarter, while the Blesdijke well (0.5 net) is currently undergoing stimulation operations and is expected to be tested in Q4 2021. |
• | In Germany, the Burgmoor Z-5 well (46% working interest) was brought on production during the third quarter. |
• | Our board of directors have approved a $75 million increase to our 2021 capital program to $375 million. The incremental capital investment will be primarily directed towards our Alberta condensate-rich natural gas drilling, Saskatchewan light oil drilling and seismic acquisitions in Europe. As a result of the strong production achieved year-to-date, combined with the US acquisition completed in Q3 2021, we have increased our 2021 annual production guidance to 84,500 - 85,500 boe/d. |
• | Based on our preliminary work to date, we anticipate a 2022 capital program in the range of $400 - $450 million with production at a similar level to our original 2021 guidance of 83,000 to 85,000 boe/d. Based on this targeted capital and production range and using forward strip pricing for 2022, we anticipate FCF in excess of $600 million with net debt in the range of $1 billion by the end of the year, implying a net debt to trailing FFO ratio of less than 1.0 times. |
• | We plan to reinstate a dividend in Q1 2022. Although it is still subject to board approval, our intention is to reinstate a fixed quarterly dividend (5-10% of FFO stress-tested at lower prices including US$55/bbl WTI) while continuing to focus on debt reduction. As further debt targets are achieved we will consider augmenting our return of capital through fixed dividend increases, share buybacks and/or special dividends. We will provide more details on our return of capital framework with our formal 2022 budget release in early December. |
(1) | Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
(2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
Vermilion Energy Inc. ■ Page 3 ■ 2021 Third Quarter Report |
($M except as indicated) | Q3 2021 | Q2 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||
Financial | ||||||||||
Petroleum and natural gas sales | 538,530 | 407,179 | 282,020 | 1,313,846 | 803,347 | |||||
Fund flows from operations | 262,696 | 172,942 | 114,776 | 597,689 | 366,853 | |||||
Fund flows from operations ($/basic share) (1) | 1.62 | 1.07 | 0.73 | 3.72 | 2.33 | |||||
Fund flows from operations ($/diluted share) (1) | 1.59 | 1.05 | 0.73 | 3.65 | 2.33 | |||||
Net (loss) earnings | (147,130) | 451,274 | (69,926) | 804,108 | (1,459,720) | |||||
Net (loss) earnings ($/basic share) | (0.91) | 2.79 | (0.44) | 5.00 | (9.26) | |||||
Capital expenditures | 66,450 | 79,176 | 31,330 | 228,989 | 307,308 | |||||
Acquisitions | 94,420 | 12,519 | 6,720 | 107,332 | 20,989 | |||||
Asset retirement obligations settled | 5,142 | 3,321 | 2,305 | 15,486 | 7,007 | |||||
Cash dividends ($/share) | — | — | — | — | 0.575 | |||||
Dividends declared | — | — | — | — | 90,067 | |||||
% of fund flows from operations | — | % | — | % | — | % | — | % | 25 | % |
Payout (1) | 71,592 | 82,497 | 33,635 | 244,475 | 396,105 | |||||
% of fund flows from operations | 27 | % | 48 | % | 29 | % | 41 | % | 108 | % |
Free Cash Flow (1) | 196,246 | 93,766 | 83,446 | 368,700 | 59,545 | |||||
Net debt (2) | 1,778,052 | 1,854,195 | 2,083,317 | 1,778,052 | 2,083,317 | |||||
Net debt to four quarter trailing fund flows from operations | 2.43 | 3.17 | 3.58 | 2.43 | 3.58 | |||||
Operational | ||||||||||
Production (3) | ||||||||||
Crude oil and condensate (bbls/d) | 38,777 | 38,354 | 43,240 | 38,777 | 44,383 | |||||
NGLs (bbls/d) | 8,068 | 8,695 | 9,509 | 8,279 | 9,041 | |||||
Natural gas (mmcf/d) | 226.73 | 235.72 | 256.34 | 232.12 | 265.39 | |||||
Total (boe/d) | 84,633 | 86,335 | 95,471 | 85,742 | 97,656 | |||||
Average realized prices | ||||||||||
Crude oil and condensate ($/bbl) | 87.05 | 79.06 | 52.77 | 79.40 | 49.03 | |||||
NGLs ($/bbl) | 35.55 | 25.43 | 15.04 | 30.03 | 11.09 | |||||
Natural gas ($/mcf) | 9.20 | 5.24 | 2.34 | 6.63 | 2.37 | |||||
Production mix (% of production) | ||||||||||
% priced with reference to WTI | 39 | % | 38 | % | 40 | % | 38 | % | 40 | % |
% priced with reference to Dated Brent | 18 | % | 17 | % | 17 | % | 18 | % | 16 | % |
% priced with reference to AECO | 28 | % | 30 | % | 28 | % | 29 | % | 28 | % |
% priced with reference to TTF and NBP | 15 | % | 15 | % | 15 | % | 15 | % | 16 | % |
Netbacks ($/boe) | ||||||||||
Operating netback (1) | 36.17 | 25.90 | 16.29 | 29.30 | 16.94 | |||||
Fund flows from operations netback | 33.27 | 22.04 | 12.95 | 25.75 | 13.63 | |||||
Operating expenses | 13.21 | 12.72 | 10.21 | 12.93 | 11.55 | |||||
General and administration expenses | 1.56 | 1.46 | 1.35 | 1.53 | 1.57 | |||||
Average reference prices and foreign exchange rates | ||||||||||
WTI (US $/bbl) | 70.56 | 66.07 | 40.93 | 64.82 | 38.32 | |||||
Edmonton Sweet index (US $/bbl) | 66.49 | 62.96 | 37.42 | 60.68 | 32.57 | |||||
Saskatchewan LSB index (US $/bbl) | 66.35 | 62.71 | 37.57 | 60.63 | 32.53 | |||||
Dated Brent (US $/bbl) | 73.47 | 68.83 | 43.00 | 67.73 | 40.82 | |||||
AECO ($/mcf) | 3.60 | 3.09 | 2.24 | 3.28 | 2.09 | |||||
NBP ($/mcf) | 20.21 | 10.92 | 3.67 | 13.32 | 3.43 | |||||
TTF ($/mcf) | 20.65 | 10.76 | 3.51 | 13.27 | 3.38 | |||||
CDN $/US $ | 1.26 | 1.23 | 1.33 | 1.25 | 1.35 | |||||
CDN $/Euro | 1.49 | 1.48 | 1.56 | 1.50 | 1.52 | |||||
Share information ('000s) | ||||||||||
Shares outstanding - basic | 161,985 | 161,893 | 158,308 | 161,985 | 158,308 | |||||
Shares outstanding - diluted (1) | 169,012 | 168,903 | 163,800 | 169,012 | 163,800 | |||||
Weighted average shares outstanding - basic | 161,957 | 161,546 | 158,307 | 160,809 | 157,688 | |||||
Weighted average shares outstanding - diluted (1) | 164,991 | 165,034 | 158,307 | 163,693 | 157,688 |
(1) | The above table includes non-GAAP financial measures which may not be comparable to other companies. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
(2) | Prior period comparatives have been revised. Net debt is defined as long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). |
(3) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
Vermilion Energy Inc. ■ Page 4 ■ 2021 Third Quarter Report |
Message to Shareholders
Global commodity prices continued to strengthen during the third quarter which we were able to take advantage of through our internationally diversified asset base. Compared to the previous quarter, global oil prices increased approximately 7%, Canadian natural gas prices increased by 24%, United States natural gas prices increased by 42%, while European natural gas prices (TTF) increased over 90%. Vermilion's exposure to global commodity prices is what sets us apart from our North American peers. Not only does this global commodity exposure enhance our revenue and cash flow during strong market cycles, but it also serves to reduce cash flow volatility over the long-term.
As a result of the strong commodity prices, we generated $263 million of FFO in Q3 2021, representing a 52% increase over the prior quarter. We invested $66 million in E&D capital expenditures during the quarter, resulting in $196 million of FCF(1) with the majority of that FCF used to reduce debt and the remainder allocated to an acquisition in the United States as well as reclamation and abandonment expenditures.
Based on the forward commodity strip, we expect to generate in excess of $500 million, or over $3.00 per share, of free cash flow in 2021 and exit 2021 with net debt forecast to be in the range of $1.65 billion. Based on these projections, this would imply a net debt to trailing FFO ratio of approximately 1.8 times which is well ahead of the original net debt target that we had at the beginning of the year as stronger commodity prices have enabled us to accelerate our debt reduction.
We now have a clear line of sight to achieving our targeted debt to trailing FFO ratio of 1.5 times or less in 2022, and with that we plan to reinstate a dividend in Q1 2022. Although it is still subject to board approval, our intention is to reinstate a fixed quarterly dividend (5-10% of FFO stress-tested at lower prices including US$55/bbl WTI) while continuing to focus on debt reduction. As further debt targets are achieved we will consider augmenting our return of capital through fixed dividend increases, share buybacks and/or special dividends. We will provide more details on our return of capital framework with our formal 2022 budget release in early December.
Q3 2021 Operations Review
During Q3 2021 we achieved average production of 84,633 boe/d which was down slightly from the previous quarter primarily due to planned maintenance activity. We completed the majority of our planned annual maintenance in Canada and Ireland during the third quarter. The impact from this was partially offset by higher production in the Netherlands, Germany, Australia and United States, including the contribution from a small bolt-on acquisition in the Powder River Basin.
Production from our North American assets averaged 57,022 boe/d in Q3 2021, a decrease of 2% from the prior quarter primarily due to planned and unplanned downtime in Canada, which was partially offset by strong performance from our United States business unit. Production from the United States increased by approximately 2,100 boe/d compared to the previous quarter due to strong performance from our Q2 2021 drilling program and the contribution from a bolt-on acquisition completed during the quarter.
In Canada, we continued with our two-rig drilling program in southeast Saskatchewan where we drilled 19 (19.0 net) wells and completed 20 (19.5 net) wells in the quarter. Activity in Alberta was primarily focused on plant turnarounds and maintenance and preparing for our Q4 2021 condensate-rich Mannville gas drilling program. Our operations were also affected by an unplanned outage at the Plains Midstream Fort Saskatchewan facility late in the quarter, but we were able to minimize the impact by optimizing our marketing logistics and rerouting some of our production to other facilities. The net impact for Q3 2021 related to this event was approximately 550 boe/d; however, most of our production has since been restored and we expect minimal impact on our full year production results.
In the United States, we completed and brought on production the remaining two (2.0 net) wells from our four (4.0 net) well Q2 2021 drilling program. We continue to enhance our knowledge of the Turner play while optimizing our drilling and completion execution. The results from our 2021 drilling program have exceeded expectations from both a cost and production performance basis. With our growing knowledge of this play and region, we were able to identify and execute a strategic acquisition during Q3 2021. The acquisition includes 20,000 net acres of land adjacent to our Hilight field in Wyoming with current production of approximately 1,500 boe/d (72% liquids), and we have identified up to 40 drilling locations in the Turner sands. With an operating netback in excess of $45/boe based on current commodity prices, the acquired assets are free cash flow positive and are expected to self-fund Turner development over the next 5+ years. In addition, we believe the acquired acreage is prospective for the Niobrara and Parkman formations based on our initial assessment and recent positive results by nearby industry peers. We are optimistic about the future development potential of these plays and will continue to evaluate our prospective land while monitoring industry activity. The acquisition complements our existing asset base by extending our Turner drilling inventory while providing longer-term resource potential from the emerging Niobrara and Parkman formations. Total consideration for the acquisition was US$76 million which was funded through our credit facility. The acquisition is expected to add approximately 600 boe/d in 2021.
Production from our International assets averaged 27,612 boe/d in Q3 2021, a decrease of 1% from the prior quarter primarily due to a three-week planned turnaround in Ireland. The turnaround was successfully completed in July and production resumed in August. Most of the impact from the planned turnaround in Ireland was offset by new production added in the Netherlands and Germany and strong operational uptime in Australia. The 20-day planned turnaround in Australia was deferred from Q3 2021 to Q4 2021 to optimize work schedules.
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Most of the activity in Europe during the third quarter was focused on completing and tying in the Nijega (1.0 net) and Blesdijke (0.5 net) gas wells in the Netherlands and the Burgmoor Z-5 gas well (46% working interest) in Germany. In the Netherlands, the Nijega well (1.0 net) was tied in during the third quarter, while the Blesdijke well (0.5 net) is currently undergoing stimulation operations and is expected to be tested in Q4 2021. In Germany, the Burgmoor Z-5 well (46% working interest) was brought on production during the third quarter.
We continue to advance our exploration initiatives in Europe through the acquisition of additional 3D seismic in the Netherlands and Croatia. With the ongoing evaluation of our land base across the CEE, we have been able to hone in our focus on the most prospective regions while relinquishing other blocks that are not deemed as prospective. Progress on the gas plant for the SA-10 block in Croatia also continued during the quarter. We took physical delivery of the gas plant that was shipped from the Netherlands and we continue to advance the detailed design work with construction planned for 2022 and first production anticipated in 2023.
2021 Capital Budget and Production Guidance Increase
When we announced our 2021 capital budget of $300 million earlier this year, we indicated that our primary focus for 2021 was to maximize free cash flow and reduce debt, while retaining the flexibility to adjust investment levels depending on commodity prices. As commodity prices have been much stronger than we anticipated, we have been able to exceed our debt reduction target for the year. As a result, our board of directors have approved a $75 million increase to our 2021 capital program to $375 million. The incremental capital investment will be primarily directed towards our Alberta condensate-rich natural gas and Saskatchewan light oil drilling programs and seismic acquisitions in Europe. In Saskatchewan, we will extend our 2H 2021 drilling program by keeping one rig active through the end of the year which will add 8 (8.0 net) wells. In Alberta, we have advanced the completion date for 9 (8.6 net) condensate-rich Mannville gas wells into Q4 2021 which were originally planned for Q1 2022. Accelerating this capital into Q4 2021 has allowed us to secure our preferred drilling and completion vendors while also improving overall capital efficiencies by executing the majority of this program in Q4 2021 compared to the busier winter months of 2022. This capital efficiency improvement will help offset some of the inflation that we are seeing in our program costs. As a result of the strong production achieved year-to-date, combined with the US acquisition completed in Q3 2021, we have increased our 2021 annual production guidance to 84,500 - 85,500 boe/d.
Preliminary 2022 Outlook
We continue to work through our 2022 budgeting process and expect to announce a formal 2022 budget and guidance in early December. We are targeting a capital program that will deliver a production base similar to our original 2021 guidance of 83,000 to 85,000 boe/d. Our preliminary capital plans for 2022 contemplate a two-well drilling program in Australia as well as continued strategic investment into Europe to expand our business. In order to achieve our production goals, execute our Australian drilling program and deliver on our strategic capital investment to support long-term FCF generation and accommodate anticipated inflation in our cost structure, we anticipate a 2022 capital program in the range of $400 - $450 million. Based on this targeted capital and production range and using forward strip pricing for 2022, we anticipate FCF in excess of $600 million with net debt in the range of $1 billion by the end of the year, implying a net debt to trailing FFO ratio of less than 1.0 times. We will continue to monitor commodity prices, progress on debt reduction and adjust our capital allocation plan as necessary.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of November 9, 2021, we have 31% of our expected net-of-royalty production hedged for the fourth quarter of 2021. With respect to individual commodity products, we have hedged 70% of our European natural gas production, 10% of our oil production, and 45% of our North American natural gas volumes for the fourth quarter of 2021, respectively. Please refer to the Hedging section of our website under Invest With Us for further details using the following link: https://www.vermilionenergy.com/invest-with-us/hedging.cfm.
Sustainability
Subsequent to Q3 2021, Vermilion announced that it had achieved certification under the EO100™ Standard for Responsible Energy Development (2017) from Equitable Origin for three of its natural gas production sites in west-central Alberta: Granada, Eta Lake and Carrot Creek. Vermilion is the third producer of natural gas in Canada to have achieved this rigorous certification, which is based on an independent assessment of performance targets within five Environment, Social and Governance-related (ESG) principles: corporate governance, transparency and ethics; human rights, social impact and community development; Indigenous People's rights; fair labor and working conditions; and climate change, biodiversity and environment. Under this certification, Vermilion has now transacted three term gas sales deals to date in which EO100TM certificates are being delivered along with natural gas. Our partners in the deals share a vision to transition toward a lower-carbon economy.
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Organizational Update
During the third quarter, we announced the appointment of Dion Hatcher as President effective January 1, 2022, succeeding Curtis Hicks who will remain with the Company as an advisor until April 1, 2022. In addition to this leadership change, we also made several other organizational changes including the promotion of Ms. Yvonne Jeffery to Vice President, Sustainability, Ms. Averyl Schraven to Vice President, People & Culture, Mr. Bryce Kremnica to Vice President, North America, and Mr. Geoff MacDonald to Vice President, Geosciences.
Mr. Dion Hatcher has been promoted to President, effective January 1, 2022. Mr. Hatcher has over 25 years of industry experience and has spent the last 15 years in a variety of leadership roles at Vermilion. He has held increasingly senior roles during his tenure at Vermilion and most recently held the position of Vice President, North America over the past year and as Vice President of the Canadian Business Unit for five years prior to that. In his most recent role, he was responsible for the profitability and operations of North America representing 67% of Vermilion's total production. His experience spans corporate strategy, oil and gas operations, mergers, acquisitions and divestures, health, safety and the environment and sustainability. Mr. Hatcher has a Bachelor of Mechanical Engineering from Memorial University of Newfoundland.
Ms. Yvonne Jeffery has been promoted to Vice President, Sustainability. Ms. Jeffery joined Vermilion’s community investment and communications team in 2013, where she has since led sustainability strategy and reporting, community investment and internal communications. She previously held leadership and communications roles specializing in the intersection of business, community and sustainable development, including at the Calgary Herald. Ms. Jeffery began her career with 10 years as a logistics officer in the Canadian Army, serving across the country and on a United Nations’ peacekeeping mission in Cambodia. Ms. Jeffery has a Bachelor of Arts in English and Management from the University of Calgary and a Master’s degree in Sustainability and Responsibility from Ashridge / Hult International Business School in Berkhamsted, England.
Ms. Averyl Schraven has been promoted to Vice President, People & Culture. Ms. Schraven joined Vermilion in 2014 as Manager, Global HR Services and was promoted to Director, People and Culture in December 2020. Prior to joining Vermilion, she spent 13 years at Schlumberger including 4 years working in the United Kingdom. Ms. Schraven has a Bachelor of Science and a Masters of Business Administration from the University of Victoria.
Mr. Bryce Kremnica has been promoted to Vice President, North America. Mr. Kremnica joined Vermilion in 2005 and has held various engineering and management positions, including an expatriate assignment as Operations Manager in the Netherlands. He was promoted to Director, Field Operations - Canadian Busines Unit in May 2014 and has been instrumental to improving our safety and cost performance while championing our culture. Prior to joining Vermilion, he worked for Chevron and ConocoPhillips in production, exploitation, facilities and reservoir engineering roles. In his new role, Mr. Kremnica will be a member of the Executive Committee and will function as co-COO alongside Darcy Kerwin, Vice President, International & HSE. Mr. Kremnica holds a B.Sc. Chemical Engineering and a Masters of Business Administration from the University of Alberta.
Mr. Geoff MacDonald has been promoted to Vice President, Geosciences. Mr. MacDonald joined Vermilion as Chief Geoscientist in March 2019 and has had a significant impact on the Canadian and United States Business Units, including strong well results, inventory management, geoscience training, process improvements and contributing to the evaluation of various acquisition opportunities. Prior to joining Vermilion, Mr. MacDonald was the Vice President, Exploration at Velvet Energy and previously worked for EOG, Enerplus and Encana. Mr. MacDonald has a Bachelor of Applied Science in Geological Engineering from the University of Waterloo, and is an APEGA licensed professional geologist.
Board of Directors
Vermilion recently announced the appointment of James J. Kleckner Jr. to our Board of Directors. Mr. Kleckner has more than 35 years of experience in various executive and senior leadership roles. He was most recently Chief Executive Officer of Jagged Peak Energy with a focus on production and development in the Permian Basin, and held a number of executive positions with Anadarko Petroleum Corporation and Kerr McGee Corporation. He has extensive operational and technical experience in US onshore resource plays and international oil and gas operations. During his career, he held leadership roles responsible for a full range of exploration, development, production and operational priorities, including mergers and acquisitions, health safety and environment, community and government relations and enterprise risk management.
Mr. Kleckner currently serves as a member of the Board of Directors for Great Western Petroleum, a private company. Previously, he served as a member of the Board of Directors of Jagged Peak Energy, Parsley Energy Inc., and two private companies: Delonex Energy Limited and Hawkwood Energy LLC. He has served on the Industry and Advisory Board of the School of Energy Research at the University of Wyoming, the Petroleum Engineering Advisory Board at the Colorado School of Mines, the Executive Board for the Colorado Oil and Gas Association, and the Executive Board for the Independent Petroleum Association of Mountain States. Mr. Kleckner holds a B.Sc. in Petroleum Engineering from the Colorado School of Mines and is a member of the Society of Petroleum Engineers.
Vermilion Energy Inc. ■ Page 7 ■ 2021 Third Quarter Report |
(Signed “Lorenzo Donadeo”) | (Signed “Curtis Hicks”) | |
Lorenzo Donadeo | Curtis Hicks | |
Executive Chairman | President | |
November 9, 2021 | November 9, 2021 |
(1) | Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
(2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
Vermilion Energy Inc. ■ Page 8 ■ 2021 Third Quarter Report |
Management's Discussion and Analysis
The following is Management’s Discussion and Analysis (“MD&A”), dated November 9, 2021, of Vermilion Energy Inc.’s (“Vermilion”, “we”, “our”, “us” or the “Company”) operating and financial results as at and for the three and nine months ended September 30, 2021 compared with the corresponding periods in the prior year.
This discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2021 and the audited consolidated financial statements for the years ended December 31, 2020 and 2019, together with the accompanying notes. Additional information relating to Vermilion, including its Annual Information Form, is available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
The unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2021 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 ("IASB").
This MD&A includes references to certain financial and performance measures which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). These measures include:
• | Fund flows from operations: Fund flows from operations is a measure of profit or loss in accordance with IFRS 8 “Operating Segments”. Please see "Segmented Information" in the "Notes to the Condensed Consolidated Interim Financial Statements" for a reconciliation of fund flows from operations to net earnings. We analyze fund flows from operations both on a consolidated basis and on a business unit basis in order to assess the contribution of each business unit to our ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. |
• | Free cash flow: Represents fund flows from operations in excess of capital expenditures. We use free cash flow to determine the funding available for investing and financing activities, including payment of dividends, repayment of long-term debt, reallocation to existing business units, and deployment into new ventures. We also assess free cash flow as a percentage of fund flows from operations, which is a measure of the percentage of fund flows from operations that is retained for incremental investing and financing activities. |
• | Net debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements". Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities), and represents Vermilion's net financing obligations after adjusting for the timing of working capital fluctuations. Net debt excludes lease obligations which are secured by a corresponding right-of-use asset. Please see "Capital disclosures" in the "Notes to the Condensed Consolidated Interim Financial Statements" for additional information. |
• | Netbacks: Netbacks are per boe and per mcf performance measures used in the analysis of operational activities. We assess netbacks both on a consolidated basis and on a business unit basis in order to compare and assess the operational and financial performance of each business unit versus other business units and also versus third party crude oil and natural gas producers. |
In addition, this MD&A includes references to certain financial measures which are not specified, defined, or determined under IFRS and are therefore considered non-GAAP financial measures. These non-GAAP financial measures are unlikely to be comparable to similar financial measures presented by other issuers. For a full description of these non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to “Non-GAAP Financial Measures”.
Product Type Disclosure
Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include segmentation by product type as defined in the instrument. In this report, references to "crude oil" and "light and medium crude oil" mean "light crude oil and medium crude oil" and references to "natural gas" mean "conventional natural gas".
In addition, in Supplemental Table 4 "Production", Vermilion provides a reconciliation from total production volumes to product type and also a reconciliation of "crude oil and condensate" and "NGLs" to the product types "light crude oil and medium crude oil" and "natural gas liquids".
Production volumes reported are based on quantities as measured at the first point of sale.
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Guidance
On January 18, 2021, we released our 2021 capital budget and associated production guidance. On November 9, 2021, we increased our 2021 capital expenditure guidance to $375 million and our 2021 annual production guidance to 84,500 to 85,500 boe/d.
The following table summarizes our guidance:
Date | Capital Expenditures ($MM) | Production (boe/d) | |
2021 Guidance | |||
2021 Guidance | January 18, 2021 | 300 | 83,000 to 85,000 |
2021 Guidance | November 9, 2021 | 375 | 84,500 to 85,500 |
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Vermilion's Business
Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, exploration, development, and optimization of producing properties in North America, Europe, and Australia. We manage our business through our Calgary head office and our international business unit offices.
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Consolidated Results Overview
Q3 2021 | Q3 2020 | Q3/21 vs. Q3/20 | YTD 2021 | YTD 2020 | 2021 vs. 2020 | |||||
Production (1) | ||||||||||
Crude oil and condensate (bbls/d) | 38,777 | 43,240 | (10)% | 38,777 | 44,383 | (13)% | ||||
NGLs (bbls/d) | 8,068 | 9,509 | (15)% | 8,279 | 9,041 | (8)% | ||||
Natural gas (mmcf/d) | 226.73 | 256.34 | (12)% | 232.12 | 265.39 | (13)% | ||||
Total (boe/d) | 84,633 | 95,471 | (11)% | 85,742 | 97,656 | (12)% | ||||
(Draw) build in inventory (mbbls) | (112) | (68) | 187 | (144) | ||||||
Financial metrics | ||||||||||
Fund flows from operations ($M) | 262,696 | 114,776 | 129% | 597,689 | 366,853 | 63% | ||||
Per share ($/basic share) | 1.62 | 0.73 | 122% | 3.72 | 2.33 | 60% | ||||
Net (loss) earnings ($M) | (147,130) | (69,926) | 110% | 804,108 | (1,459,720) | N/A | ||||
Per share ($/basic share) | (0.91) | (0.44) | 107% | 5.00 | (9.26) | N/A | ||||
Free cash flow | 196,246 | 83,446 | 135% | 368,700 | 59,545 | 519% | ||||
Net debt ($M) (2) | 1,778,052 | 2,083,317 | (15)% | 1,778,052 | 2,083,317 | (15)% | ||||
Activity | ||||||||||
Capital expenditures ($M) | 66,450 | 31,330 | 112% | 228,989 | 307,308 | (26)% | ||||
Acquisitions ($M) | 94,420 | 6,720 | 107,332 | 20,989 |
(1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
(2) | Prior period comparatives have been revised. Net debt is defined as long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). |
Financial performance review |
Q3 2021 vs. Q3 2020
• | We recorded a net loss of $147.1 million ($0.91/basic share) for Q3 2021 compared to a net loss of $69.9 million ($0.44/basic share) in Q3 2020. The increase in net loss was primarily driven by unrealized losses on derivatives due to increased commodity prices. These losses were partially offset by an increase in FFO which was predominantly driven by an increase in realized pricing, as well as a decrease in impairment reversals recognized versus the prior quarter. |
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• | We generated fund flows from operations of $262.7 million in Q3 2021, an increase from $114.8 million in Q3 2020 primarily as a result of higher commodity prices, which is reflected in our consolidated realized price per boe increasing from $31.86/boe in Q3 2020 to $68.19/boe in Q3 2021. This was partially offset by a decrease in sales volumes, primarily driven by natural decline and planned maintenance activity; increased royalties, due to increased pricing; and increases in transportation and operating expenses driven by increased transportation costs in France due to incremental trucking costs and higher maintenance activity in North America. |
YTD 2021 vs. YTD 2020
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• | For the nine months ended September 30, 2021, we achieved net earnings of $804.1 million compared to a net loss of $1,459.7 million for the comparable period in 2020. The increase in net earnings was primarily due to impairment charges we recorded in 2020 of $1,272.1 million (net of $410.2 million income tax recovery), impairment reversal charges we recorded in 2021 of $969.3 million (net of $309.4 million income tax expense) and higher fund flows from operations driven by increased consolidated realized pricing. These increases were partially offset by higher unrealized derivative losses driven by increased commodity prices. |
• | Fund flows from operations increased by 63% for the nine months ended September 30, 2021 versus the same period in 2020, primarily driven by a 90% increase in our consolidated realized price from $29.86/boe to $56.58/boe. Sales volumes decreased year-over-year primarily due to natural decline in North America, Ireland, and Netherlands, as well as timing of liftings in Australia, while royalties increased as a result of higher benchmark prices. |
Production review |
Q3 2021 vs. Q3 2020
• | Consolidated average production of 84,633 boe/d in Q3 2021 represented a decrease of 11% from Q3 2020 production of 95,471 boe/d. Production decreases in Canada of 8,088 boe/d were primarily due to reduced capital activity as we are focused on maximizing free cash flow and reducing debt in 2021, and in Ireland of 2,075 boe/d which were primarily due to a planned turnaround. |
YTD 2021 vs. YTD 2020
• | Consolidated average production of 85,742 boe/d for the nine months ended September 30, 2021 represented a decrease of 12% from the prior year comparable period of 97,656 boe/d. Production decreases were mainly in Canada of 7,929 boe/d and in Ireland of 1,564 boe/d due to reduced capital activity and natural decline, respectively. |
Activity review |
• | For the three months ended September 30, 2021, capital expenditures of $66.5 million were incurred. |
• | In our North America core region, capital expenditures of $35.2 million were incurred during Q3 2021. In Canada, $29.7 million was incurred primarily related to drilling and facility activity. In southeast Saskatchewan we drilled 19 (19.0 net) wells and completed 20 (19.5 net) wells. Eighteen (17.5 net) wells were brought on production during the quarter. In addition, we completed one (0.2 net) and brought one (0.2 net) Mannville natural gas wells on production in Alberta. In the United States, we completed and brought on production two (2.0 net) wells in the quarter. |
• | In our International core region, capital expenditures of $31.3 million were incurred during Q3 2021. Our activities included $9.3 million in Central and Eastern Europe mainly related to facility expenditures in Croatia, $8.9 million in France mainly due to increased activity on subsurface maintenance and facilities, $6.1 million incurred in Australia primarily for facility work, and $3.3 million in Germany mainly related to tie-in and workover activity. |
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Financial sustainability review |
Free cash flow
• | Free cash flow of $368.7 million increased by $309.2 million for the nine months ended September 30, 2021 compared to the prior year period. This was primarily the result of a 90% increase in consolidated realized prices, as well as lower capital spending due to a focus on generating free cash flow and reducing debt in 2021. |
Long-term debt and net debt
• | Long-term debt decreased to $1.8 billion as at September 30, 2021 from $1.9 billion as at December 31, 2020. |
• | Net debt decreased to $1.8 billion as at September 30, 2021 from $2.0 billion as at December 31, 2020 (revised), mainly due to a decrease in long-term debt as a result of debt repayments of $238.1 million. |
• | In Q3 2021, we adjusted our net debt calculation in order to provide more meaningful and comparable information. The revised net debt definition has been adjusted as long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). |
• | The ratio of net debt to four quarter trailing fund flows from operations decreased to 2.43 as at September 30, 2021 (December 31, 2020 - 4.00 (revised)) mainly due to lower net debt combined with higher four quarter trailing fund flows from operations. |
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Benchmark Commodity Prices
Q3 2021 | Q3 2020 | Q3/21 vs. Q3/20 | YTD 2021 | YTD 2020 | 2021 vs. 2020 | |||||
Crude oil | ||||||||||
WTI ($/bbl) | 88.90 | 54.54 | 63% | 81.14 | 51.90 | 56% | ||||
WTI (US $/bbl) | 70.56 | 40.93 | 72% | 64.82 | 38.32 | 69% | ||||
Edmonton Sweet index ($/bbl) | 83.77 | 49.86 | 68% | 75.95 | 44.11 | 72% | ||||
Edmonton Sweet index (US $/bbl) | 66.49 | 37.42 | 78% | 60.68 | 32.57 | 86% | ||||
Saskatchewan LSB index ($/bbl) | 83.59 | 50.06 | 67% | 75.89 | 44.06 | 72% | ||||
Saskatchewan LSB index (US $/bbl) | 66.35 | 37.57 | 77% | 60.63 | 32.53 | 86% | ||||
Canadian C5+ Condensate index ($/bbl) | 87.25 | 50.02 | 74% | 80.81 | 47.91 | 69% | ||||
Canadian C5+ Condensate index (US $/bbl) | 69.25 | 37.54 | 85% | 64.56 | 35.37 | 83% | ||||
Dated Brent ($/bbl) | 92.56 | 57.29 | 62% | 84.78 | 55.29 | 53% | ||||
Dated Brent (US $/bbl) | 73.47 | 43.00 | 71% | 67.73 | 40.82 | 66% | ||||
Natural gas | ||||||||||
AECO ($/mcf) | 3.60 | 2.24 | 61% | 3.28 | 2.09 | 57% | ||||
NBP ($/mcf) | 20.21 | 3.67 | 451% | 13.32 | 3.43 | 288% | ||||
NBP (#eu#/mcf) | 13.61 | 2.36 | 477% | 8.89 | 2.25 | 295% | ||||
TTF ($/mcf) | 20.65 | 3.51 | 488% | 13.27 | 3.38 | 293% | ||||
TTF (#eu#/mcf) | 13.91 | 2.25 | 518% | 8.86 | 2.22 | 299% | ||||
Henry Hub ($/mcf) | 5.05 | 2.63 | 92% | 3.98 | 2.54 | 57% | ||||
Henry Hub (US $/mcf) | 4.01 | 1.97 | 104% | 3.18 | 1.88 | 69% | ||||
Average exchange rates | ||||||||||
CDN $/US $ | 1.26 | 1.33 | (5)% | 1.25 | 1.35 | (7)% | ||||
CDN $/Euro | 1.49 | 1.56 | (5)% | 1.50 | 1.52 | (1)% | ||||
Realized prices | ||||||||||
Crude oil and condensate ($/bbl) | 87.05 | 52.77 | 65% | 79.40 | 49.03 | 62% | ||||
NGLs ($/bbl) | 35.55 | 15.04 | 136% | 30.03 | 11.09 | 171% | ||||
Natural gas ($/mcf) | 9.20 | 2.34 | 293% | 6.63 | 2.37 | 180% | ||||
Total ($/boe) | 68.19 | 31.86 | 114% | 56.58 | 29.86 | 90% |
As an internationally diversified producer, we are exposed to a range of commodity prices. In our North America core region, our crude oil is sold at benchmarks linked to WTI (including the Edmonton Sweet index, the Saskatchewan LSB index, and the Canadian C5+ index) and our natural gas is sold at the AECO index (in Canada) or the Henry Hub index (in the United States). In our International core region, our crude oil is sold with reference to Dated Brent and our natural gas is sold with reference to NBP, TTF, or indices highly correlated to TTF.
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• | Crude oil prices increased in Q3 2021 relative to Q3 2020 due to continued global demand recovery, OPEC+ group’s adherence to moderated supply increase schedule, and continued capital discipline leading to muted US shale production growth. Year-over-year, Canadian dollar WTI and Brent prices rose 72% and 71% respectively. |
• | In Canadian dollar terms, year-over-year, the Edmonton Sweet differential widened by $0.45/bbl to a discount of $5.13/bbl against WTI, and the Saskatchewan LSB differential widened by $0.83/bbl to a discount of $5.31/bbl against WTI. |
• | Approximately 38% of Vermilion’s Q3 2021 crude oil and condensate production was priced at the Dated Brent index (which averaged a premium to WTI of US$2.91/bbl), while the remainder of our crude oil and condensate production was priced at the Saskatchewan LSB, Canadian C5+, Edmonton Sweet, and WTI indices. |
• | In Canadian dollar terms, prices for European natural gas (NBP and TTF) rose by 451% and 488%, respectively, in Q3 2021 compared to Q3 2020. Lower than average supply balances leading into winter have been driven by the continued demand recovery along with lower supply from both pipeline flows and LNG imports. Prices have also increased due to higher Asian LNG, global coal and European carbon prices. |
• | Natural gas prices at AECO in Q3 2021 increased by 61% compared to Q3 2020, with seasonal demand and supportive storage balances improving prices. |
• | For Q3 2021, average European natural gas prices represented a $16.83/mcf premium to AECO. Approximately 36% of our natural gas production in Q3 2021 benefited from this premium European pricing. |
• | For the three months ended September 30, 2021, the Canadian dollar remained flat against the Euro quarter-over-quarter. |
• | For the three months ended September 30, 2021, the Canadian dollar weakened 3% against the US dollar quarter-over-quarter. |
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North America
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||
Production (1) | ||||||||||||
Crude oil and condensate (bbls/d) | 24,757 | 28,296 | 24,573 | 29,912 | ||||||||
NGLs (bbls/d) | 8,068 | 9,508 | 8,279 | 9,041 | ||||||||
Natural gas (mmcf/d) | 145.18 | 163.09 | 147.20 | 164.46 | ||||||||
Total production volume (boe/d) | 57,022 | 64,986 | 57,386 | 66,363 |
(1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Sales | 264,393 | 50.40 | 173,029 | 28.94 | 709,136 | 45.26 | 459,829 | 25.29 | ||||||||
Royalties | (37,444) | (7.14) | (21,423) | (3.58) | (97,279) | (6.21) | (52,737) | (2.90) | ||||||||
Transportation | (10,085) | (1.92) | (10,413) | (1.74) | (30,653) | (1.96) | (32,485) | (1.79) | ||||||||
Operating | (57,834) | (11.02) | (46,762) | (7.82) | (172,945) | (11.04) | (177,542) | (9.76) | ||||||||
General and administration (1) | (5,990) | (1.14) | (4,688) | (0.78) | (17,663) | (1.13) | (19,300) | (1.06) | ||||||||
Corporate income tax (expense) (1) | (276) | (0.05) | (108) | (0.02) | (689) | (0.04) | (443) | (0.02) | ||||||||
Fund flows from operations | 152,764 | 29.12 | 89,635 | 14.99 | 389,907 | 24.89 | 177,322 | 9.75 | ||||||||
Capital expenditures | (35,179) | (9,575) | (133,139) | (231,480) | ||||||||||||
Free cash flow | 117,585 | 80,060 | 256,768 | (54,158) |
(1) | Includes amounts from Corporate segment. |
In North America, production averaged 57,022 boe/d in Q3 2021, a decrease of 12% year-over-year primarily due to natural decline and reduced capital activity as we focused on maximizing free cash flow and reducing debt. The production decline was partially offset by a small acquisition completed in the United States during Q3 2021.
In Canada, we continued with our two-rig drilling program in southeast Saskatchewan where we drilled 19 (19.0 net) wells and completed 20 (19.5 net) wells in the quarter. Activity in Alberta was primarily focused on plant turnarounds and maintenance and preparing for our Q4 2021 condensate-rich Mannville drilling program. Our operations were affected by an unplanned outage at the Plains Midstream Fort Saskatchewan facility late in the quarter, but we were able to minimize the impact by optimizing our marketing logistics and rerouting our production to other facilities. The net impact for Q3 2021 related to this event was approximately 550 boe/d.
In the United States, we completed and brought on production the remaining two (2.0 net) wells from our four (4.0 net) well Q2 2021 drilling program. The results from our 2021 drilling program have exceeded expectations from both a cost and production performance basis. We completed a strategic acquisition in the United States during the third quarter. The acquisition includes 20,000 net acres of land adjacent to our Hilight field in Wyoming with current production of approximately 1,500 boe/d (72% liquids) and we have identified up to 40 drilling locations in the Turner sands. Total consideration for the acquisition was US$76 million which was funded through our credit facility.
Sales |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Canada | 228,519 | 48.54 | 153,374 | 28.13 | 631,175 | 43.85 | 408,472 | 24.58 | ||||||||
United States | 35,874 | 66.61 | 19,655 | 37.28 | 77,961 | 61.29 | 51,357 | 32.84 | ||||||||
North America | 264,393 | 50.40 | 173,029 | 28.94 | 709,136 | 45.26 | 459,829 | 25.29 |
Sales in North America increased on a dollar and per unit basis for the three and nine months ended September 30, 2021 versus the comparable prior periods due to higher benchmark prices across all products, partially offset by lower production volumes.
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Royalties |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Canada | (27,812) | (5.91) | (16,259) | (2.98) | (76,587) | (5.32) | (39,721) | (2.39) | ||||||||
United States | (9,632) | (17.89) | (5,164) | (9.80) | (20,692) | (16.27) | (13,016) | (8.32) | ||||||||
North America | (37,444) | (7.14) | (21,423) | (3.58) | (97,279) | (6.21) | (52,737) | (2.90) |
Royalties in North America increased on a dollar and per unit basis for the three and nine months ended September 30, 2021 versus the comparable prior periods primarily due to higher benchmark prices. Royalties as a percentage of sales for the three and nine months ended September 30, 2021 of 14.2% and 13.7% increased versus comparable periods in the prior year primarily due to the effect of higher commodity prices on sliding scale royalties.
Transportation |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Canada | (9,526) | (2.02) | (9,904) | (1.82) | (29,630) | (2.06) | (31,507) | (1.90) | ||||||||
United States | (559) | (1.04) | (509) | (0.97) | (1,023) | (0.80) | (978) | (0.63) | ||||||||
North America | (10,085) | (1.92) | (10,413) | (1.74) | (30,653) | (1.96) | (32,485) | (1.79) |
Transportation expense in North America remained relatively consistent for the three and nine months ended September 30, 2021 versus the comparable prior periods. On a per unit basis for the three and nine months ended September 30, 2021, transportation expense increased slightly versus the comparable prior periods primarily due to higher pipeline tariffs partially offset by lower volumes shipped through pipelines.
Operating expense |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Canada | (53,076) | (11.27) | (42,405) | (7.78) | (160,683) | (11.16) | (163,871) | (9.86) | ||||||||
United States | (4,758) | (8.84) | (4,357) | (8.26) | (12,262) | (9.64) | (13,671) | (8.74) | ||||||||
North America | (57,834) | (11.02) | (46,762) | (7.82) | (172,945) | (11.04) | (177,542) | (9.76) |
Operating expenses in North America increased on a dollar basis for the three months ended September 30, 2021 versus the comparable prior period primarily due to higher maintenance activity in Q3 2021. For the nine months ended September 30, 2021, operating expenses remained relatively consistent versus the comparable prior period. On a per unit basis, operating expenses increased for the three and nine months ended September 30, 2021 versus the comparable prior periods primarily due to lower production volumes and the resulting impact of fixed costs.
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International
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||
Production (1) | ||||||||||||
Crude oil and condensate (bbls/d) | 14,020 | 14,943 | 14,203 | 14,471 | ||||||||
Natural gas (mmcf/d) | 81.55 | 93.25 | 84.92 | 100.93 | ||||||||
Total production volume (boe/d) | 27,612 | 30,484 | 28,356 | 31,292 | ||||||||
Total sales volume (boe/d) | 28,820 | 31,229 | 27,669 | 31,817 |
(1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Sales | 274,137 | 103.39 | 108,991 | 37.94 | 604,710 | 80.06 | 343,518 | 39.40 | ||||||||
Royalties | (11,991) | (4.52) | (9,546) | (3.32) | (30,058) | (3.98) | (25,709) | (2.95) | ||||||||
Transportation | (9,188) | (3.47) | (6,546) | (2.28) | (27,475) | (3.64) | (18,169) | (2.08) | ||||||||
Operating | (46,521) | (17.55) | (43,600) | (15.18) | (127,388) | (16.86) | (133,133) | (15.27) | ||||||||
General and administration | (6,351) | (2.40) | (7,281) | (2.53) | (17,840) | (2.36) | (22,898) | (2.63) | ||||||||
Corporate income tax recovery (expense) | 1,690 | 0.64 | 118 | 0.04 | 2,757 | 0.36 | (279) | (0.03) | ||||||||
PRRT | (7,271) | (2.74) | (3,638) | (1.27) | (10,144) | (1.34) | (16,113) | (1.85) | ||||||||
Fund flows from operations | 194,505 | 73.36 | 38,498 | 13.40 | 394,562 | 52.23 | 127,217 | 14.59 | ||||||||
Capital expenditures | (31,271) | (21,755) | (95,850) | (75,828) | ||||||||||||
Free cash flow | 163,234 | 16,743 | 298,712 | 51,389 |
Production from our International assets averaged 27,612 boe/d in Q3 2021, representing a decrease of 9% year-over-year primarily due to natural decline and a planned turnaround in Ireland.
Most of the activity in Europe during the third quarter was focused on completing and tying in the Nijega (1.0 net) and Blesdijke (0.5 net) gas wells in the Netherlands and the Burgmoor Z-5 gas well (46% working interest) in Germany. In the Netherlands, the Nijega well (1.0 net) was tied in during the third quarter, while the Blesdijke well (0.5 net) is currently undergoing stimulation operations and is expected to be tested in Q4 2021. In Germany, the Burgmoor Z-5 well (46% working interest) was brought on production during the third quarter.
Progress on the gas plant for the SA-10 block in Croatia also continued during the quarter. We took physical delivery of the gas plant that was shipped from the Netherlands and we continue to advance the detailed design work with construction planned for 2022 and first production anticipated in 2023.
Sales |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Australia | 44,044 | 105.17 | 30,537 | 68.63 | 102,682 | 99.77 | 111,304 | 76.89 | ||||||||
France | 79,817 | 91.60 | 48,976 | 53.55 | 199,454 | 84.11 | 129,094 | 54.35 | ||||||||
Netherlands | 69,247 | 104.68 | 12,351 | 17.29 | 130,353 | 69.67 | 42,608 | 19.54 | ||||||||
Germany | 32,943 | 94.41 | 6,507 | 26.17 | 66,312 | 69.97 | 23,529 | 27.44 | ||||||||
Ireland | 47,817 | 137.58 | 10,472 | 19.45 | 105,073 | 79.75 | 35,328 | 20.18 | ||||||||
Central and Eastern Europe | 269 | 81.22 | 148 | 12.19 | 836 | 49.39 | 1,655 | 15.65 | ||||||||
International | 274,137 | 103.39 | 108,991 | 37.94 | 604,710 | 80.06 | 343,518 | 39.40 |
As a result of changes in inventory levels, our sales volumes for crude oil in Australia, France, and Germany may differ from our production volumes in those business units. The following table provides the crude oil sales volumes (consisting entirely of "light crude oil and medium crude oil") for those jurisdictions.
Vermilion Energy Inc. ■ Page 20 ■ 2021 Third Quarter Report |
Crude oil sales volumes (bbls/d) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||||
Australia | 4,552 | 4,836 | 3,770 | 5,283 | ||||||
France | 9,471 | 9,941 | 8,687 | 8,669 | ||||||
Germany | 1,094 | 828 | 959 | 958 | ||||||
International | 15,117 | 15,605 | 13,416 | 14,910 |
Sales increased on a dollar and per boe basis for the three and nine months ended September 30, 2021 versus the prior year comparable periods due to higher realized prices across all business units, and were offset by lower sales volumes in Ireland, Netherlands, and Central Eastern Europe driven by natural decline, a planned turnaround in Ireland and the timing of liftings in France and Australia.
Royalties |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
France | (11,089) | (12.73) | (8,902) | (9.73) | (27,492) | (11.59) | (22,653) | (9.54) | ||||||||
Netherlands | (229) | (0.35) | (96) | (0.13) | (454) | (0.24) | (294) | (0.13) | ||||||||
Germany | (616) | (1.77) | (443) | (1.78) | (1,938) | (2.05) | (2,180) | (2.54) | ||||||||
Central and Eastern Europe | (57) | (17.21) | (105) | (8.65) | (174) | (10.28) | (582) | (5.50) | ||||||||
International | (11,991) | (4.52) | (9,546) | (3.32) | (30,058) | (3.98) | (25,709) | (2.95) |
Royalties in our International core region are primarily incurred in France, where royalties include charges based on a percentage of sales and fixed per boe charges. Our production in Australia and Ireland is not subject to royalties.
Royalties increased in our International core region for the three and nine months ended September 30, 2021 versus the prior year comparable periods mainly due to increases in France as a result of an RCDM rate increase and higher R31 royalties as a result of higher commodity prices increasing sales. Royalties as a percentage of sales for the three and nine months ended September 30, 2021 of 4.4% and 5.0% decreased versus the prior year comparable periods of 8.8% and 7.5% primarily due to the impact of RCDM royalties in France, which are levied on units of production and not subject to changes in commodity prices.
Transportation |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
France | (6,400) | (7.34) | (3,868) | (4.23) | (19,923) | (8.40) | (10,340) | (4.35) | ||||||||
Germany | (1,708) | (4.89) | (1,475) | (5.93) | (4,283) | (4.52) | (4,302) | (5.02) | ||||||||
Ireland | (1,080) | (3.11) | (1,203) | (2.23) | (3,269) | (2.48) | (3,527) | (2.01) | ||||||||
International | (9,188) | (3.47) | (6,546) | (2.28) | (27,475) | (3.64) | (18,169) | (2.08) |
Transportation expense increased for the three and nine months ended September 30, 2021 versus the comparable prior year periods. This increase was primarily in France relating to the use of incremental trucking in the Paris Basin following the conversion of the Grandpuits refinery. Our production in Australia, Netherlands and Central and Eastern Europe is not subject to transportation expense.
Vermilion Energy Inc. ■ Page 21 ■ 2021 Third Quarter Report |
Operating expense |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Australia | (14,684) | (35.06) | (12,111) | (27.22) | (34,830) | (33.84) | (40,143) | (27.73) | ||||||||
France | (13,523) | (15.52) | (14,983) | (16.38) | (37,905) | (15.98) | (40,898) | (17.22) | ||||||||
Netherlands | (8,514) | (12.87) | (8,197) | (11.48) | (23,820) | (12.73) | (24,638) | (11.30) | ||||||||
Germany | (6,717) | (19.25) | (4,262) | (17.14) | (19,826) | (20.92) | (15,089) | (17.60) | ||||||||
Ireland | (2,968) | (8.54) | (3,936) | (7.31) | (10,782) | (8.18) | (12,000) | (6.85) | ||||||||
Central and Eastern Europe | (115) | (34.72) | (111) | (9.14) | (225) | (13.29) | (365) | (3.45) | ||||||||
International | (46,521) | (17.55) | (43,600) | (15.18) | (127,388) | (16.86) | (133,133) | (15.27) |
Operating expenses on a dollar and per boe basis increased for Q3 2021 versus Q3 2020. This increase was primarily due to higher inventory draws in Australia where operating expenses are deferred on the balance sheet until crude oil is sold at which point the related expenses are recognized into income and in Germany due to increased activity in Q3 2021.
For the nine months ended September 30, 2021 versus the comparable prior year period, operating expenses decreased mainly due to larger inventory builds in Australia and France. Operating expenses on a per boe basis for the same periods increased mainly due to timing of inventory draws and higher facility costs in Germany combined with natural declines in Ireland and the Netherlands.
Vermilion Energy Inc. ■ Page 22 ■ 2021 Third Quarter Report |
Consolidated Financial Performance Review
Fund flows from operations |
Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||
Sales | 538,530 | 68.19 | 282,020 | 31.86 | 1,313,846 | 56.58 | 803,347 | 29.86 | ||||||||
Royalties | (49,435) | (6.26) | (30,969) | (3.50) | (127,337) | (5.48) | (78,446) | (2.92) | ||||||||
Transportation | (19,273) | (2.44) | (16,959) | (1.92) | (58,128) | (2.50) | (50,654) | (1.88) | ||||||||
Operating | (104,355) | (13.21) | (90,362) | (10.21) | (300,333) | (12.93) | (310,675) | (11.55) | ||||||||
General and administration | (12,341) | (1.56) | (11,969) | (1.35) | (35,503) | (1.53) | (42,198) | (1.57) | ||||||||
Corporate income tax recovery (expense) | 1,414 | 0.18 | 10 | — | 2,068 | 0.09 | (722) | (0.03) | ||||||||
PRRT | (7,271) | (0.92) | (3,638) | (0.41) | (10,144) | (0.44) | (16,113) | (0.60) | ||||||||
Interest expense | (18,699) | (2.37) | (17,400) | (1.97) | (56,796) | (2.45) | (55,269) | (2.05) | ||||||||
Realized (loss) gain on derivatives | (72,579) | (9.19) | 4,180 | 0.47 | (137,786) | (5.93) | 108,303 | 4.03 | ||||||||
Realized foreign exchange gain (loss) | 2,921 | 0.37 | (2,714) | (0.31) | (4,218) | (0.18) | 9,781 | 0.36 | ||||||||
Realized other income (expense) | 3,784 | 0.48 | 2,577 | 0.29 | 12,020 | 0.52 | (501) | (0.02) | ||||||||
Fund flows from operations | 262,696 | 33.27 | 114,776 | 12.95 | 597,689 | 25.75 | 366,853 | 13.63 |
Fluctuations in fund flows from operations may occur as a result of changes in production levels, commodity prices, and costs to produce petroleum and natural gas. In addition, fund flows from operations may be affected by the timing of crude oil shipments in Australia and France. When crude oil inventory is built up, the related operating expense, royalties, and depletion expense are deferred and carried as inventory on the consolidated balance sheet. When the crude oil inventory is subsequently drawn down, the related expenses are recognized within profit or loss.
General and administration
• | General and administration expense remained relatively consistent in Q3 2021 versus Q3 2020, and decreased for the nine months ended September 30, 2021 versus the comparable prior year period primarily due to work-force reductions made in Q4 2020. |
PRRT and corporate income taxes
�� | PRRT increased for the three months ended September 30, 2021 versus the prior year comparable period primarily due to higher sales in Australia. |
• | PRRT decreased for the nine months ended September 30, 2021 versus the prior year comparable period due to lower sales and higher capital expenditures in Australia. |
• | Corporate income taxes for the three and nine months ended September 30, 2021 decreased versus the prior year comparable periods primarily due to the application of tax losses in France and Australia. |
Interest expense
• | Interest expense remained relatively consistent for the three and nine months ended September 30, 2021 versus the prior year comparable periods. |
Realized gain or loss on derivatives
• | For the three and nine months ended September 30, 2021, we recorded realized losses on our crude oil and natural gas hedges due to higher commodity pricing compared to the strike prices on our hedges. Realized gains on derivatives for the prior year comparable periods relate to receipts for European natural gas and crude oil hedges. |
• | A listing of derivative positions as at September 30, 2021 is included in “Supplemental Table 2” of this MD&A. |
Realized other income
• | Realized other income for the three and nine months ended September 30, 2021 primarily relates to amounts for funding under the Saskatchewan Accelerated Site Closure program to complete abandonment and reclamation on inactive oil and gas wells and facilities. |
Vermilion Energy Inc. ■ Page 23 ■ 2021 Third Quarter Report |
Net earnings |
The following table shows a reconciliation from fund flows from operations to net (loss) earnings:
($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Fund flows from operations | 262,696 | 114,776 | 597,689 | 366,853 | ||||
Equity based compensation | (7,823) | (9,733) | (34,899) | (31,894) | ||||
Unrealized loss on derivative instruments | (279,393) | (39,637) | (353,359) | (34,092) | ||||
Unrealized foreign exchange (loss) gain | (27,877) | 15,885 | (72,085) | (1,507) | ||||
Accretion | (11,199) | (9,158) | (32,569) | (26,184) | ||||
Depletion and depreciation | (167,808) | (167,728) | (423,472) | (432,242) | ||||
Deferred tax recovery (expense) | 62,245 | 73,653 | (172,509) | 382,321 | ||||
Gain on business combinations | — | — | 17,198 | — | ||||
Impairment reversal (expense) | 22,225 | (47,777) | 1,278,697 | (1,682,344) | ||||
Unrealized other expense | (196) | (207) | (583) | (631) | ||||
Net (loss) earnings | (147,130) | (69,926) | 804,108 | (1,459,720) |
Fluctuations in net earnings from period-to-period are caused by changes in both cash and non-cash based income and charges. Cash based items are reflected in fund flows from operations. Non-cash items include: equity based compensation expense, unrealized gains and losses on derivative instruments, unrealized foreign exchange gains and losses, accretion, depletion and depreciation expense, and deferred taxes. In addition, non-cash items may also include gains resulting from business combinations or charges resulting from impairment or impairment reversals.
Equity based compensation
Equity based compensation expense relates primarily to non-cash compensation expense attributable to long-term incentives granted to directors, officers, and employees under security-based arrangements. Equity based compensation expense decreased for the three months ended September 30, 2021 due to lower performance factor applied to grants, while equity based compensation increased for the nine months ended September 30, 2021 due to settlement of bonuses in Q1 2021 under the employee bonus plan.
Unrealized gain or loss on derivative instruments
Unrealized gain or loss on derivative instruments arise as a result of changes in forecasts for future prices and rates. As Vermilion uses derivative instruments to manage the commodity price exposure of our future crude oil and natural gas production, we will normally recognize unrealized gains on derivative instruments when future commodity price forecasts decline and vice-versa. As derivative instruments are settled, the unrealized gain or loss previously recognized is reversed, and the settlement results in a realized gain or loss on derivative instruments.
USD-to-CAD cross currency interest rate swaps and foreign exchange swaps may be entered into to hedge the foreign exchange movements on USD borrowings on our revolving credit facility. As such, unrealized gains and losses on our cross currency interest swaps are offset by unrealized losses and gains on foreign exchange relating to the underlying USD borrowings from our revolving credit facility.
For the three months ended September 30, 2021, we recognized a net unrealized loss on derivative instruments of $279.4 million. This consists of unrealized losses of $306.3 million on our European natural gas commodity derivative instruments and $7.7 million on our crude oil commodity derivative instruments, partially offset by unrealized gains of $20.9 million on our USD-to-CAD foreign exchange swaps, $7.5 million on our North American natural gas commodity derivative instruments and $6.5 million on our equity swaps.
For the nine months ended September 30, 2021, we recognized a net unrealized loss on derivative instruments of $353.4 million. This consists of unrealized losses of $431.2 million on our European natural gas commodity derivative instruments, $8.7 million on our crude oil commodity derivative instruments, and $3.1 million on our North American natural gas commodity derivative instruments, partially offset by unrealized gains of $63.7 million on our USD-to-CAD foreign exchange swaps and $25.6 million on our equity swaps.
Unrealized foreign exchange gains or losses
As a result of Vermilion’s international operations, Vermilion has monetary assets and liabilities denominated in currencies other than the Canadian dollar. These monetary assets and liabilities include cash, receivables, payables, long-term debt, derivative instruments and intercompany loans. Unrealized foreign exchange gains and losses result from translating these monetary assets and liabilities from their underlying currency to the Canadian dollar.
Vermilion Energy Inc. ■ Page 24 ■ 2021 Third Quarter Report |
In 2021, unrealized foreign exchange gains and losses primarily resulted from:
• | The translation of Euro denominated intercompany loans from Vermilion Energy Inc. to our international subsidiaries. An appreciation in the Euro against the Canadian dollar will result in an unrealized foreign exchange gain (and vice-versa). Under IFRS, the offsetting foreign exchange loss or gain is recorded as a currency translation adjustment within other comprehensive income. As a result, consolidated comprehensive income reflects the offsetting of these translation adjustments while net earnings reflects only the parent company's side of the translation. |
• | The translation of USD borrowings on our revolving credit facility. The unrealized foreign exchange gains or losses on these borrowings are offset by unrealized derivative gains or losses on associated USD-to-CAD cross currency interest rate swaps (discussed further below). |
• | The translation of our USD denominated senior unsecured notes prior to June 12, 2019 and from May 5, 2020 onward. During the period between June 12, 2019 and May 5, 2020 the USD senior notes were hedged by a USD-to-CAD cross currency interest rate swap. Subsequent to the termination of these instruments, amounts previously recognized in the hedge accounting reserve will be recognized into earnings through unrealized foreign exchange loss over the period of the hedged cash flows. |
For the three months ended September 30, 2021, we recognized a net unrealized foreign exchange loss of $27.9 million due to unrealized losses of $29.3 million on our USD borrowings from our revolving credit facility and the impact of the US dollar strengthening 2.8% against the Canadian dollar in Q3 2021 resulting in an unrealized loss of $10.2 million on our senior unsecured notes. These were partially offset by an unrealized gain of $4.2 million on intercompany loans due to the Euro strengthening 0.7% against the Canadian dollar in Q3 2021.
For the nine months ended September 30, 2021, we recognized a net unrealized foreign exchange loss of $72.1 million. This was due to unrealized losses of $73.5 million on our USD borrowings from our revolving credit facility and $10.2 million on intercompany loans due to the Euro weakening 5.3% against the Canadian dollar. These were partially offset by the impact of the US dollar weakening 0.7% against the Canadian dollar resulting in an unrealized gain of $2.8 million on our senior unsecured notes.
As at September 30, 2021, a $0.01 appreciation of the Euro against the Canadian dollar would result in a $0.7 million increase to net earnings as a result of an unrealized gain on foreign exchange. In contrast, a $0.01 appreciation of the US dollar against the Canadian dollar would result in a $2.8 million decrease to net earnings as a result of an unrealized loss on foreign exchange.
Accretion
Accretion expense is recognized to update the present value of the asset retirement obligation balance. For the three and nine months ended September 30, 2021 versus the comparable prior year periods accretion expense increased primarily due to additional obligations recognized at the end of 2020 through 2021 partially offset by the weakening of the Euro against the Canadian dollar.
Depletion and depreciation
Depletion and depreciation expense is recognized to allocate the cost of capital assets over the useful life of the respective assets. Depletion and depreciation expense per unit of production is determined for each depletion unit (which are groups of assets within a specific production area that have similar economic lives) by dividing the sum of the net book value of capital assets and future development costs by total proved plus probable reserves.
Fluctuations in depletion and depreciation expense are primarily the result of changes in produced crude oil and natural gas volumes, and changes in depletion and depreciation per unit. Fluctuations in depletion and depreciation per unit are the result of changes in reserves, depletable base (net book value of capital assets and future development costs), and relative production mix.
Depletion and depreciation on a per boe basis for the three and nine months ended September 30, 2021 of $21.25 and $18.24 increased from $18.95 and $16.07 in the prior year comparable periods primarily due to impairment reversals recorded in the first half of 2021.
Vermilion Energy Inc. ■ Page 25 ■ 2021 Third Quarter Report |
Deferred tax
Deferred tax assets arise when the tax basis of an asset exceeds its accounting basis (known as a deductible temporary difference). Conversely, deferred tax liabilities arise when the tax basis of an asset is less than its accounting basis (known as a taxable temporary difference). Deferred tax assets are recognized only to the extent that it is probable that there are future taxable profits against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are measured at the enacted or substantively enacted tax rate that is expected to apply when the asset is realized, or the liability is settled.
As such, fluctuations in deferred tax expenses and recoveries primarily arise as a result of: changes in the accounting basis of an asset or liability without a corresponding tax basis change (e.g. when derivative assets and liabilities are marked-to-market or when accounting depletion differs from tax depletion), changes in available tax losses (e.g. if they are utilized to offset taxable income), changes in estimated future taxable profits resulting in a derecognition or recognition of deferred tax assets, and changes in enacted or substantively enacted tax rates.
For the three and nine months ended September 30, 2021, the Company recorded a deferred tax recovery of $62.2 million and deferred tax expense of $172.5 million, respectively compared to deferred tax recoveries of $73.7 million and $382.3 million for the prior year comparable periods. The deferred tax expense for the nine months ended September 30, 2021 is primarily due to impairment reversals in the first half of 2021, partially offset by the recognition of a portion of non-expiring tax loss pools in Ireland that are expected to be utilized due to an increase in forecast commodity prices.
Impairment
Impairment losses are recognized when indicators of impairment arise and the carrying amount of a cash generating unit ("CGU") exceeds its recoverable amount, determined as the higher of fair value less costs of disposal or value-in-use.
In the third quarter of 2021, indicators of impairment reversal were present in our Ireland CGU due to an increase and stabilization in forecast gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the Ireland CGU and the recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, the recoverable amount was determined to be greater than the carrying value and $16.7 million (net of $5.5 million deferred income tax expense) of impairment reversal was recorded.
In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGUs due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded.
In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast crude oil prices versus 2020 when impairment charges were taken. As a result of the indicators of impairment reversal, the Company performed impairment reversal tests on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded.
In the first quarter of 2020, indicators of impairment were present due to global commodity price forecasts deteriorating from decreases in demand and an increase of supply around the world. As a result of the indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment calculations completed, the Company recognized non-cash impairment charges of $1.2 billion (net of $0.4 billion income tax recovery).
In the second quarter of 2020, indicators of impairment were present due to the Company’s market capitalization falling below the carrying value of its net assets as at June 30, 2020. As a result of the indicators of impairment, the Company performed an impairment test. The recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment calculations completed, the Company recognized non-cash impairment charges of $53.1 million (net of $16.6 million income tax recovery).
Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
Vermilion Energy Inc. ■ Page 26 ■ 2021 Third Quarter Report |
Gain on business combinations
A gain on business combination is recognized when the total consideration paid in a business combination is less than the fair value of the net assets acquired. For the nine months ended September 30, 2021, a gain of $17.2 million was recognized on our purchase of assets in Germany in the second quarter of 2021.
Vermilion Energy Inc. ■ Page 27 ■ 2021 Third Quarter Report |
Financial Position Review
Balance sheet strategy |
We regularly review whether our forecast of fund flows from operations is sufficient to finance planned capital expenditures, dividends, and abandonment and reclamation expenditures. To the extent that fund flows from operations forecasts are not expected to be sufficient to fulfill such expenditures, we will evaluate our ability to finance any shortfall by reducing some or all categories of expenditures, with issuances of equity, or with debt (including borrowing using the unutilized capacity of our existing revolving credit facility). We have a long-term goal of achieving and maintaining a ratio of net debt to fund flows from operations of less than 1.5.
As at September 30, 2021, we have a ratio of net debt to fund flows from operations of 2.43. We will continue to monitor for changes in forecasted fund flows from operations and, as appropriate, will adjust our exploration and development capital plans (and associated growth targets) to minimize any further increase to debt. We intend to strengthen our balance sheet through debt reduction, and as commodity prices improve, may implement a return of capital in the form of dividends and/or share buybacks.
Net debt |
Net debt is reconciled to long-term debt, as follows:
As at | ||||
($M) | Sep 30, 2021 | Dec 31, 2020 (revised) | ||
Long-term debt | 1,760,342 | 1,933,848 | ||
Adjusted working capital deficiency (1) | 41,168 | 35,258 | ||
Unrealized foreign exchange on swapped USD borrowings | (23,458) | 40,219 | ||
Net debt | 1,778,052 | 2,009,325 | ||
Ratio of net debt to four quarter trailing fund flows from operations | 2.43 | 4.00 |
(1) Adjusted working capital is defined as current assets (excluding current derivatives), less current liabilities (excluding current derivatives and current lease liabilities)
In Q3 2021, the Company adjusted the calculation for net debt in order to provide more meaningful and comparable information to users. The revised definition of net debt is long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities).
As at September 30, 2021, net debt decreased to $1.8 billion (December 31, 2020 - $2.0 billion (revised)) primarily as a result of debt repayments of $238.1 million funded by free cash flow generated for the nine months ended September 30, 2021 of $368.7 million. We will draw on unutilized capacity of the revolving credit facility to fund working capital deficiencies. The ratio of net debt to four quarter trailing fund flows from operations decreased to 2.43 (December 31, 2020 - 4.00 (revised)) mainly due to the decrease in net debt combined with higher four quarter trailing fund flows from operations.
Long-term debt |
The balances recognized on our balance sheet are as follows:
As at | ||||
($M) | Sep 30, 2021 | Dec 31, 2020 | ||
Revolving credit facility | 1,383,946 | 1,555,215 | ||
Senior unsecured notes | 376,396 | 378,633 | ||
Long-term debt | 1,760,342 | 1,933,848 |
Vermilion Energy Inc. ■ Page 28 ■ 2021 Third Quarter Report |
Revolving Credit Facility
As at September 30, 2021, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with terms and outstanding positions as follows:
As at | ||||
($M) | Sep 30, 2021 | Dec 31, 2020 | ||
Total facility amount | 2,100,000 | 2,100,000 | ||
Amount drawn | (1,383,946) | (1,555,215) | ||
Letters of credit outstanding | (16,022) | (23,210) | ||
Unutilized capacity | 700,032 | 521,575 |
As at September 30, 2021, the revolving credit facility was subject to the following financial covenants:
As at | |||||
Financial covenant | Limit | Sep 30, 2021 | Dec 31, 2020 | ||
Consolidated total debt to consolidated EBITDA | Less than 4.0 | 2.20 | 3.48 | ||
Consolidated total senior debt to consolidated EBITDA | Less than 3.5 | 1.72 | 2.82 | ||
Consolidated EBITDA to consolidated interest expense | Greater than 2.5 | 11.00 | 8.12 |
Our financial covenants include financial measures defined within our revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by our revolving credit facility agreement as follows:
• | Consolidated total debt: Includes all amounts classified as “Long-term debt”, “Current portion of long-term debt”, and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on our balance sheet. |
• | Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. |
• | Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. |
• | Total interest expense: Includes all amounts classified as "Interest expense", but excludes interest on operating leases as defined under IAS 17. |
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby if our security adjusted liability management ratings fall below specified limits in a province, a portion of the asset retirement obligations are included in the definitions of consolidated total debt and consolidated total senior debt. An event of default occurs if our security adjusted liability management ratings breach additional lower limits for a period greater than 90 days. As of September 30, 2021, Vermilion's liability management ratings were higher than the specified levels, and as such, no amounts relating to asset retirement obligations were included in the calculation of consolidated total debt and consolidated total senior debt.
Senior Unsecured Notes
On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, paid semi-annually on March 15 and September 15, and mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally in right of payment with existing and future senior indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
Year | Redemption price | |
2021 | 102.813 | % |
2022 | 101.406 | % |
2023 and thereafter | 100.000 | % |
Vermilion Energy Inc. ■ Page 29 ■ 2021 Third Quarter Report |
Shareholders' capital |
The following table outlines our dividend payment history:
Date | Monthly dividend per unit or share |
January 2003 to December 2007 | $0.170 |
January 2008 to December 2012 | $0.190 |
January 2013 to December 2013 | $0.200 |
January 2014 to March 2018 | $0.215 |
April 2018 to February 2020 | $0.230 |
March 2020 | $0.115 |
In April 2020, we suspended our monthly dividend to strengthen the financial position of the Company. Our ability to restore a dividend will be dependent upon stronger commodity prices combined with a balance sheet that reflects the Company's ability to sustain such dividend over the long-term.
The following table reconciles the change in shareholders’ capital:
Shareholders’ Capital | Number of Shares ('000s) | Amount ($M) | ||
Balance at December 31, 2020 | 158,724 | 4,181,160 | ||
Vesting of equity based awards | 2,132 | 45,051 | ||
Equity based compensation | 911 | 8,364 | ||
Share-settled dividends on vested equity based awards | 218 | 1,926 | ||
Balance at September 30, 2021 | 161,985 | 4,236,501 |
As at September 30, 2021, there were approximately 7.2 million equity based compensation awards outstanding. As at November 9, 2021, there were approximately 162.3 million common shares issued and outstanding.
Asset Retirement Obligations
As at September 30, 2021, asset retirement obligations were $876.9 million compared to $467.7 million as at December 31, 2020. The increase in asset retirement obligations is primarily attributable to a decrease in the credit-adjusted risk-free rate from December 31, 2020 to September 30, 2021. This increase was partially offset by the Euro weakening against the Canadian dollar and obligations settled.
The present value of the obligation is calculated using a credit-adjusted risk-free rate, calculated using a credit spread added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined as the yield to maturity on its senior unsecured notes at the end of the reporting period.
The risk-free rates and credit spread used as inputs to discount the obligations were as follows:
Sep 30, 2021 | Dec 31, 2020 | Change | ||||
Credit spread added to below noted risk-free rates | 4.3 | % | 9.5 | % | (5.2) | % |
Country specific risk-free rate | ||||||
Canada | 2.0 | % | 1.2 | % | 0.8 | % |
United States | 2.0 | % | 1.6 | % | 0.4 | % |
France | 0.8 | % | 0.3 | % | 0.5 | % |
Netherlands | (0.4) | % | (0.6) | % | 0.2 | % |
Germany | 0.2 | % | (0.2) | % | 0.4 | % |
Ireland | 0.5 | % | (0.1) | % | 0.6 | % |
Australia | 1.7 | % | 1.3 | % | 0.4 | % |
Vermilion Energy Inc. ■ Page 30 ■ 2021 Third Quarter Report |
Risks and Uncertainties
Vermilion is exposed to various market and operational risks. For a discussion of these risks, please see Vermilion's MD&A and Annual Information Form, each for the year ended December 31, 2020 available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect
reported assets, liabilities, revenues and expenses, gains and losses, and disclosures of any possible contingencies. These estimates and assumptions are developed based on the best available information which management believed to be reasonable at the time such estimates and assumptions were made. As such, these assumptions are uncertain at the time estimates are made and could change, resulting in a material impact on Vermilion’s consolidated financial statements. Estimates are reviewed by management on an ongoing basis and as a result may change from period to period due to the availability of new information or changes in circumstances. 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. There have been no material changes to our critical accounting estimates used in applying accounting policies for the nine months ended September 30, 2021. Further information, including a discussion of critical accounting estimates, can be found in the notes to the Consolidated Financial Statements and annual MD&A for the year ended December 31, 2020, available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
Off Balance Sheet Arrangements
We have not entered into any guarantee or off balance sheet arrangements that would materially impact our financial position or results of operations.
Internal Control Over Financial Reporting
Other than Vermilion's response to COVID-19, there has been no change in Vermilion’s internal control over financial reporting ("ICFR") during the period covered by this MD&A that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
As a result of COVID-19, our global workforce shifted to a primarily work from home environment beginning in March 2020. This change to remote working was rapid and included both our employees as well as a large extended workforce across all regions in which we operate. While pre-existing controls were not specifically designed to operate in our current work from home operating environment, we believe that our internal controls over financial reporting continue to be effective. We took precautionary actions to re-evaluate and refine our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely. During 2021, portions of our workforce returned to a work from the office arrangement.
Recently Adopted Accounting Pronouncements
Vermilion did not adopt any new accounting pronouncements as at September 30, 2021.
Disclosure Controls and Procedures
Our officers have established and maintained disclosure controls and procedures and evaluated the effectiveness of these controls in conjunction with our filings.
As of September 30, 2021, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the President, for this specific purpose of acting in the capacity of Chief Executive Officer, and Chief Financial Officer have concluded and certified that our disclosure controls and procedures are effective.
Vermilion Energy Inc. ■ Page 31 ■ 2021 Third Quarter Report |
Supplemental Table 1: Netbacks
The following table includes financial statement information on a per unit basis by business unit. Liquids includes crude oil, condensate, and NGLs. Natural gas sales volumes have been converted on a basis of six thousand cubic feet of natural gas to one barrel of oil equivalent.
Q3 2021 | YTD 2021 | Q3 2020 | YTD 2020 | |||||||
Liquids | Natural Gas | Total | Liquids | Natural Gas | Total | Total | Total | |||
$/bbl | $/mcf | $/boe | $/bbl | $/mcf | $/boe | $/boe | $/boe | |||
Canada | ||||||||||
Sales | 69.83 | 3.77 | 48.54 | 62.94 | 3.36 | 43.85 | 28.13 | 24.58 | ||
Royalties | (9.81) | (0.19) | (5.91) | (8.77) | (0.17) | (5.32) | (2.98) | (2.39) | ||
Transportation | (2.72) | (0.20) | (2.02) | (2.73) | (0.20) | (2.06) | (1.82) | (1.90) | ||
Operating | (14.58) | (1.21) | (11.27) | (13.91) | (1.29) | (11.16) | (7.78) | (9.86) | ||
Operating netback | 42.72 | 2.17 | 29.34 | 37.53 | 1.70 | 25.31 | 15.55 | 10.43 | ||
General and administration | (1.01) | (1.05) | (1.10) | (1.05) | ||||||
Fund flows from operations netback | 28.33 | 24.26 | 14.45 | 9.38 | ||||||
United States | ||||||||||
Sales | 76.25 | 4.36 | 66.61 | 67.64 | 6.40 | 61.29 | 37.28 | 32.84 | ||
Royalties | (20.39) | (1.23) | (17.89) | (17.76) | (1.81) | (16.27) | (9.80) | (8.32) | ||
Transportation | (1.29) | — | (1.04) | (1.03) | — | (0.80) | (0.97) | (0.63) | ||
Operating | (8.99) | (1.37) | (8.84) | (9.73) | (1.55) | (9.64) | (8.26) | (8.74) | ||
Operating netback | 45.58 | 1.76 | 38.84 | 39.12 | 3.04 | 34.58 | 18.25 | 15.15 | ||
General and administration | (2.51) | (2.34) | (2.44) | (3.23) | ||||||
Fund flows from operations netback | 36.33 | 32.24 | 15.81 | 11.92 | ||||||
France | ||||||||||
Sales | 91.60 | — | 91.60 | 84.11 | — | 84.11 | 53.55 | 54.35 | ||
Royalties | (12.72) | — | (12.73) | (11.59) | — | (11.59) | (9.73) | (9.54) | ||
Transportation | (7.34) | — | (7.34) | (8.40) | — | (8.40) | (4.23) | (4.35) | ||
Operating | (15.52) | — | (15.52) | (15.98) | — | (15.98) | (16.38) | (17.22) | ||
Operating netback | 56.02 | — | 56.01 | 48.14 | — | 48.14 | 23.21 | 23.24 | ||
General and administration | (3.35) | (3.60) | (3.05) | (4.10) | ||||||
Current income taxes | 14.23 | 5.23 | — | — | ||||||
Fund flows from operations netback | 66.89 | 49.77 | 20.16 | 19.14 | ||||||
Netherlands | ||||||||||
Sales | 79.70 | 17.51 | 104.68 | 62.50 | 11.63 | 69.67 | 17.29 | 19.54 | ||
Royalties | — | (0.06) | (0.35) | — | (0.04) | (0.24) | (0.13) | (0.13) | ||
Operating | — | (2.18) | (12.87) | — | (2.15) | (12.73) | (11.48) | (11.30) | ||
Operating netback | 79.70 | 15.27 | 91.46 | 62.50 | 9.44 | 56.70 | 5.68 | 8.11 | ||
General and administration | (0.23) | (0.28) | (0.64) | (0.56) | ||||||
Current income taxes | (16.06) | (6.94) | 0.49 | 0.28 | ||||||
Fund flows from operations netback | 75.17 | 49.48 | 5.53 | 7.83 | ||||||
Germany | ||||||||||
Sales | 82.31 | 16.55 | 94.41 | 78.17 | 11.14 | 69.97 | 26.17 | 27.44 | ||
Royalties | (1.53) | (0.31) | (1.77) | (1.17) | (0.40) | (2.05) | (1.78) | (2.54) | ||
Transportation | (12.49) | (0.30) | (4.89) | (10.76) | (0.36) | (4.52) | (5.93) | (5.02) | ||
Operating | (25.26) | (2.80) | (19.25) | (24.24) | (3.28) | (20.92) | (17.14) | (17.60) | ||
Operating netback | 43.03 | 13.14 | 68.50 | 42.00 | 7.10 | 42.48 | 1.32 | 2.28 | ||
General and administration | (3.33) | (3.95) | (5.97) | (5.29) | ||||||
Fund flows from operations netback | 65.17 | 38.53 | (4.65) | (3.01) | ||||||
Ireland | ||||||||||
Sales | — | 22.93 | 137.58 | — | 13.29 | 79.75 | 19.45 | 20.18 | ||
Transportation | — | (0.52) | (3.11) | — | (0.41) | (2.48) | (2.23) | (2.01) | ||
Operating | — | (1.42) | (8.54) | — | (1.36) | (8.18) | (7.31) | (6.85) | ||
Operating netback | — | 20.99 | 125.93 | — | 11.52 | 69.09 | 9.91 | 11.32 | ||
General and administration | (0.88) | 0.29 | (0.51) | (0.32) | ||||||
Fund flows from operations netback | 125.05 | 69.38 | 9.40 | 11.00 |
Vermilion Energy Inc. ■ Page 32 ■ 2021 Third Quarter Report |
Q3 2021 | YTD 2021 | Q3 2020 | YTD 2020 | |||||||
Liquids | Natural Gas | Total | Liquids | Natural Gas | Total | Total | Total | |||
$/bbl | $/mcf | $/boe | $/bbl | $/mcf | $/boe | $/boe | $/boe | |||
Australia | ||||||||||
Sales | 105.17 | — | 105.17 | 99.77 | — | 99.77 | 68.63 | 76.89 | ||
Operating | (35.06) | — | (35.06) | (33.84) | — | (33.84) | (27.22) | (27.73) | ||
PRRT (1) | (17.36) | — | (17.36) | (9.86) | — | (9.86) | (8.18) | (11.13) | ||
Operating netback | 52.75 | — | 52.75 | 56.07 | — | 56.07 | 33.23 | 38.03 | ||
General and administration | (2.09) | (2.29) | (2.39) | (1.95) | ||||||
Current income taxes | (0.21) | 3.25 | (0.53) | (0.61) | ||||||
Fund flows from operations netback | 50.45 | 57.03 | 30.31 | 35.47 | ||||||
Total Company | ||||||||||
Sales | 78.41 | 9.20 | 68.19 | 70.58 | 6.63 | 56.58 | 31.86 | 29.86 | ||
Realized hedging (loss) gain | (0.51) | (3.37) | (9.19) | (3.22) | (1.53) | (5.93) | 0.47 | 4.03 | ||
Royalties | (10.28) | (0.19) | (6.26) | (9.11) | (0.19) | (5.48) | (3.50) | (2.92) | ||
Transportation | (3.45) | (0.19) | (2.44) | (3.59) | (0.20) | (2.50) | (1.92) | (1.88) | ||
Operating | (16.37) | (1.53) | (13.21) | (15.77) | (1.59) | (12.93) | (10.21) | (11.55) | ||
PRRT (1) | (1.64) | — | (0.92) | (0.80) | — | (0.44) | (0.41) | (0.60) | ||
Operating netback | 46.16 | 3.92 | 36.17 | 38.09 | 3.12 | 29.30 | 16.29 | 16.94 | ||
General and administration | (1.56) | (1.53) | (1.35) | (1.57) | ||||||
Interest expense | (2.37) | (2.45) | (1.97) | (2.05) | ||||||
Realized foreign exchange loss | 0.37 | (0.18) | (0.31) | 0.36 | ||||||
Other income | 0.48 | 0.52 | 0.29 | (0.02) | ||||||
Corporate income taxes | 0.18 | 0.09 | — | (0.03) | ||||||
Fund flows from operations netback | 33.27 | 25.75 | 12.95 | 13.63 |
(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. |
Vermilion Energy Inc. ■ Page 33 ■ 2021 Third Quarter Report |
Supplemental Table 2: Hedges
The prices in these tables may represent the weighted averages for several contracts with foreign currency amounts translated to the disclosure currency using forward rates as at the month-end date. The weighted average price for the portfolio of options listed below may not have the same payoff profile as the individual contracts. As such, the presentation of the weighted average prices is purely for indicative purposes.
The following tables outline Vermilion’s outstanding risk management positions as at September 30, 2021:
Unit | Currency | Daily Bought Put Volume | Weighted Average Bought Put Price | Daily Sold Call Volume | Weighted Average Sold Call Price | Daily Sold Put Volume | Weighted Average Sold Put Price | Daily Sold Swap Volume | Weighted Average Sold Swap Price | Daily Bought Swap Volume | Weighted Average Bought Swap Price | |||||||||||
Dated Brent | ||||||||||||||||||||||
Q4 2021 | bbl | USD | — | — | — | — | — | — | 1,342 | 59.97 | — | — | ||||||||||
Q1 2022 | bbl | USD | 2,700 | 62.50 | 2,700 | 81.01 | 2,700 | 47.50 | 500 | 52.00 | — | — | ||||||||||
Q2 2022 | bbl | USD | 2,700 | 62.50 | 2,700 | 81.01 | 2,700 | 47.50 | — | — | — | — | ||||||||||
Q3 2022 | bbl | USD | 1,850 | 62.50 | 1,850 | 81.35 | 1,850 | 47.50 | — | — | — | — | ||||||||||
Q4 2022 | bbl | USD | 1,850 | 62.50 | 1,850 | 81.35 | 1,850 | 47.50 | — | — | — | — | ||||||||||
WTI | ||||||||||||||||||||||
Q4 2021 | bbl | USD | 1,000 | 60.00 | 1,000 | 80.50 | 1,000 | 50.00 | 1,853 | 62.32 | — | — | ||||||||||
Q1 2022 | bbl | USD | 6,300 | 60.00 | 6,300 | 77.31 | 6,300 | 45.00 | — | — | — | — | ||||||||||
Q2 2022 | bbl | USD | 6,300 | 60.00 | 6,300 | 77.31 | 6,300 | 45.00 | — | — | — | — | ||||||||||
Q3 2022 | bbl | USD | 2,500 | 60.00 | 2,500 | 80.86 | 2,500 | 45.00 | — | — | — | — | ||||||||||
Q4 2022 | bbl | USD | 2,500 | 60.00 | 2,500 | 80.86 | 2,500 | 45.00 | — | — | — | — | ||||||||||
AECO | ||||||||||||||||||||||
Q4 2021 | mcf | CAD | — | — | — | — | — | — | 3,194 | 2.12 | — | — | ||||||||||
AECO Basis (AECO less NYMEX Henry Hub) | ||||||||||||||||||||||
Q4 2021 | mcf | USD | — | — | — | — | — | — | 35,054 | (1.09) | — | — | ||||||||||
Q1 2022 | mcf | USD | — | — | — | — | — | — | 30,000 | (1.10) | — | — | ||||||||||
Q2 2022 | mcf | USD | — | — | — | — | — | — | 35,000 | (1.09) | — | — | ||||||||||
Q3 2022 | mcf | USD | — | — | — | — | — | — | 35,000 | (1.09) | — | — | ||||||||||
Q4 2022 | mcf | USD | — | — | — | — | — | — | 11,793 | (1.09) | — | — | ||||||||||
NYMEX Henry Hub | ||||||||||||||||||||||
Q4 2021 | mcf | USD | 31,685 | 2.72 | 31,685 | 3.12 | — | — | 21,870 | 2.78 | — | — | ||||||||||
Q2 2022 | mcf | USD | 10,000 | 3.00 | 10,000 | 4.04 | — | — | — | — | — | — | ||||||||||
Q3 2022 | mcf | USD | 10,000 | 3.00 | 10,000 | 4.04 | — | — | — | — | — | — | ||||||||||
Q4 2022 | mcf | USD | 3,370 | 3.00 | 3,370 | 4.04 | — | — | — | — | — | — | ||||||||||
Ventura Basis (Ventura less NYMEX Henry Hub) | ||||||||||||||||||||||
Q4 2021 | mcf | USD | — | — | — | — | — | — | — | — | 3,370 | 0.05 | ||||||||||
Conway Propane | — | — | ||||||||||||||||||||
Q4 2021 | bbl | USD | — | — | — | — | — | — | 168 | 50% WTI | — | — |
Vermilion Energy Inc. ■ Page 34 ■ 2021 Third Quarter Report |
Unit | Currency | Daily Bought Put Volume | Weighted Average Bought Put Price | Daily Sold Call Volume | Weighted Average Sold Call Price | Daily Sold Put Volume | Weighted Average Sold Put Price | Daily Sold Swap Volume | Weighted Average Sold Swap Price | Daily Bought Swap Volume | Weighted Average Bought Swap Price | |||||||||||
NBP | ||||||||||||||||||||||
Q4 2021 | mcf | EUR | 58,962 | 5.37 | 58,962 | 5.68 | 58,962 | 3.88 | 2,457 | 4.69 | — | — | ||||||||||
Q1 2022 | mcf | EUR | 36,851 | 6.04 | 36,851 | 7.54 | 34,394 | 3.63 | 4,913 | 4.91 | — | — | ||||||||||
Q2 2022 | mcf | EUR | 27,024 | 5.07 | 27,024 | 5.78 | 27,024 | 3.50 | 4,913 | 4.91 | — | — | ||||||||||
Q3 2022 | mcf | EUR | 19,654 | 5.11 | 19,654 | 6.20 | 19,654 | 3.66 | 4,913 | 4.91 | — | — | ||||||||||
Q4 2022 | mcf | EUR | 19,654 | 5.11 | 19,654 | 6.20 | 19,654 | 3.66 | 4,913 | 4.91 | — | — | ||||||||||
Q1 2023 | mcf | EUR | 12,284 | 5.19 | 12,284 | 6.39 | 12,284 | 3.75 | — | — | — | — | ||||||||||
Q2 2023 | mcf | EUR | 4,913 | 5.86 | 4,913 | 8.24 | 4,913 | 4.40 | — | — | — | — | ||||||||||
TTF | ||||||||||||||||||||||
Q1 2022 | mcf | EUR | 2,457 | 4.84 | 2,457 | 5.64 | 2,457 | 3.52 | — | — | — | — | ||||||||||
Q2 2022 | mcf | EUR | 2,457 | 4.84 | 2,457 | 5.64 | 2,457 | 3.52 | — | — | — | — | ||||||||||
Q3 2022 | mcf | EUR | 2,457 | 4.84 | 2,457 | 5.64 | 2,457 | 3.52 | — | — | — | — | ||||||||||
Q4 2022 | mcf | EUR | 2,457 | 4.84 | 2,457 | 5.64 | 2,457 | 3.52 | — | — | — | — | ||||||||||
Q1 2023 | mcf | EUR | 2,457 | 4.84 | 2,457 | 5.64 | 2,457 | 3.52 | — | — | — | — |
VET Equity Swaps | Initial Share Price | Share Volume | |||||||
Swap | Jan 2020 - Apr 2023 | 20.9788 | CAD | 2,250,000 | |||||
Swap | Jan 2020 - Apr 2023 | 22.4587 | CAD | 1,500,000 |
Foreign Currency Swaps | Notional Amount | Notional Amount | Average Rate | ||||
Swap | October 2021 | 1,045,016,080 | USD | 1,300,000,000 | CAD | 1.2440 | |
Vermilion Energy Inc. ■ Page 35 ■ 2021 Third Quarter Report |
Supplemental Table 3: Capital Expenditures and Acquisitions
By classification ($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Drilling and development | 63,173 | 29,762 | 220,388 | 299,578 | ||||
Exploration and evaluation | 3,277 | 1,568 | 8,601 | 7,730 | ||||
Capital expenditures | 66,450 | 31,330 | 228,989 | 307,308 | ||||
Acquisitions | 92,191 | 6,720 | 104,780 | 20,989 | ||||
Contingent consideration | — | — | 330 | — | ||||
Long-term debt net of working capital assumed | 2,229 | — | 2,222 | — | ||||
Acquisitions | 94,420 | 6,720 | 107,332 | 20,989 | ||||
By category ($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Drilling, completion, new well equip and tie-in, workovers and recompletions | 38,666 | 13,220 | 154,901 | 243,338 | ||||
Production equipment and facilities | 26,092 | 15,800 | 62,982 | 48,617 | ||||
Seismic, studies, land and other | 1,692 | 2,310 | 11,106 | 15,353 | ||||
Capital expenditures | 66,450 | 31,330 | 228,989 | 307,308 | ||||
Acquisitions | 94,420 | 6,720 | 107,332 | 20,989 | ||||
Total capital expenditures and acquisitions | 160,870 | 38,050 | 336,321 | 328,297 | ||||
Capital expenditures by country ($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Canada | 29,660 | 3,837 | 104,191 | 166,199 | ||||
United States | 5,519 | 5,738 | 28,948 | 65,281 | ||||
France | 8,886 | 12,638 | 24,678 | 29,498 | ||||
Netherlands | 2,789 | 1,553 | 14,605 | 6,688 | ||||
Germany | 3,318 | 1,558 | 9,424 | 12,692 | ||||
Ireland | 918 | 928 | 1,156 | 1,612 | ||||
Australia | 6,073 | 3,926 | 26,030 | 20,128 | ||||
Central and Eastern Europe | 9,287 | 1,152 | 19,957 | 5,210 | ||||
Total capital expenditures | 66,450 | 31,330 | 228,989 | 307,308 | ||||
Acquisitions by country ($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Canada | 150 | 6,621 | 508 | 12,320 | ||||
United States | 94,170 | 90 | 94,170 | 6,697 | ||||
France | — | — | — | — | ||||
Netherlands | — | — | — | — | ||||
Germany | 100 | 9 | 12,654 | 592 | ||||
Ireland | — | — | — | — | ||||
Australia | — | — | — | — | ||||
Central and Eastern Europe | — | — | — | 1,380 | ||||
Total acquisitions | 94,420 | 6,720 | 107,332 | 20,989 |
Vermilion Energy Inc. ■ Page 36 ■ 2021 Third Quarter Report |
Supplemental Table 4: Production
Q3/21 | Q2/21 | Q1/21 | Q4/20 | Q3/20 | Q2/20 | Q1/20 | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | |||||||||||||
Canada | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 16,809 | 16,868 | 17,767 | 19,301 | 19,847 | 22,545 | 22,767 | 23,259 | 23,610 | 23,973 | 25,067 | 25,640 | ||||||||||||
Condensate (1) (bbls/d) | 4,426 | 5,558 | 4,556 | 4,662 | 5,200 | 5,047 | 4,634 | 4,140 | 4,072 | 4,872 | 4,096 | 3,918 | ||||||||||||
Other NGLs (1) (bbls/d) | 6,862 | 7,767 | 7,016 | 7,334 | 8,350 | 8,248 | 6,943 | 7,005 | 6,632 | 7,352 | 6,968 | 6,816 | ||||||||||||
NGLs (bbls/d) | 11,288 | 13,325 | 11,572 | 11,996 | 13,550 | 13,295 | 11,577 | 11,145 | 10,704 | 12,224 | 11,064 | 10,734 | ||||||||||||
Conventional natural gas (mmcf/d) | 138.42 | 146.55 | 138.41 | 135.27 | 155.15 | 164.08 | 151.16 | 145.14 | 145.14 | 151.87 | 151.37 | 146.65 | ||||||||||||
Total (boe/d) | 51,168 | 54,618 | 52,407 | 53,840 | 59,256 | 63,187 | 59,537 | 58,593 | 58,504 | 61,507 | 61,360 | 60,814 | ||||||||||||
United States | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 3,520 | 1,888 | 2,322 | 2,495 | 3,243 | 3,971 | 2,481 | 3,149 | 2,717 | 2,421 | 1,750 | 1,582 | ||||||||||||
Condensate (1) (bbls/d) | 2 | 2 | — | 1 | 6 | 6 | 6 | 12 | 4 | 63 | (8) | 23 | ||||||||||||
Other NGLs (1) (bbls/d) | 1,206 | 928 | 1,058 | 1,294 | 1,158 | 1,340 | 1,079 | 1,156 | 1,140 | 754 | 929 | 998 | ||||||||||||
NGLs (bbls/d) | 1,208 | 930 | 1,058 | 1,295 | 1,164 | 1,346 | 1,085 | 1,168 | 1,144 | 817 | 921 | 1,021 | ||||||||||||
Conventional natural gas (mmcf/d) | 6.75 | 5.51 | 5.95 | 6.87 | 7.94 | 8.35 | 6.72 | 8.20 | 6.38 | 7.06 | 5.89 | 5.65 | ||||||||||||
Total (boe/d) | 5,854 | 3,736 | 4,373 | 4,934 | 5,730 | 6,708 | 4,685 | 5,683 | 4,925 | 4,414 | 3,653 | 3,545 | ||||||||||||
France | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 8,677 | 9,013 | 9,062 | 9,255 | 9,347 | 7,046 | 9,957 | 10,264 | 10,347 | 9,800 | 11,342 | 11,317 | ||||||||||||
Conventional natural gas (mmcf/d) | — | — | — | — | — | — | — | — | — | — | 0.77 | 0.82 | ||||||||||||
Total (boe/d) | 8,677 | 9,013 | 9,062 | 9,255 | 9,347 | 7,046 | 9,957 | 10,264 | 10,347 | 9,800 | 11,470 | 11,454 | ||||||||||||
Netherlands | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 6 | 1 | 6 | 1 | - | 1 | 3 | 4 | 1 | 9 | — | — | ||||||||||||
Condensate (1) (bbls/d) | 104 | 95 | 92 | 99 | 83 | 86 | 84 | 86 | 81 | 91 | 93 | 112 | ||||||||||||
NGLs (bbls/d) | 104 | 95 | 92 | 99 | 83 | 86 | 84 | 86 | 81 | 91 | 93 | 112 | ||||||||||||
Conventional natural gas (mmcf/d) | 42.48 | 37.59 | 41.45 | 42.95 | 46.09 | 47.31 | 48.33 | 47.99 | 44.08 | 52.90 | 51.51 | 51.82 | ||||||||||||
Total (boe/d) | 7,190 | 6,362 | 7,006 | 7,257 | 7,764 | 7,972 | 8,143 | 8,088 | 7,429 | 8,917 | 8,677 | 8,749 | ||||||||||||
Germany | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 1,043 | 1,093 | 911 | 960 | 964 | 1,039 | 909 | 800 | 845 | 1,047 | 978 | 913 | ||||||||||||
Conventional natural gas (mmcf/d) | 16.19 | 15.60 | 13.40 | 11.50 | 11.25 | 13.23 | 14.64 | 15.44 | 14.54 | 14.56 | 16.71 | 16.94 | ||||||||||||
Total (boe/d) | 3,741 | 3,694 | 3,144 | 2,876 | 2,839 | 3,244 | 3,349 | 3,373 | 3,269 | 3,474 | 3,763 | 3,736 | ||||||||||||
Ireland | ||||||||||||||||||||||||
Conventional natural gas (mmcf/d) | 22.67 | 30.19 | 34.14 | 34.76 | 35.12 | 38.57 | 41.38 | 42.30 | 43.21 | 49.21 | 51.71 | 52.03 | ||||||||||||
Total (boe/d) | 3,778 | 5,031 | 5,690 | 5,793 | 5,853 | 6,428 | 6,896 | 7,049 | 7,202 | 8,201 | 8,619 | 8,672 | ||||||||||||
Australia | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 4,190 | 3,835 | 4,489 | 3,781 | 4,549 | 5,299 | 4,041 | 4,548 | 5,564 | 6,689 | 5,862 | 4,174 | ||||||||||||
Total (boe/d) | 4,190 | 3,835 | 4,489 | 3,781 | 4,549 | 5,299 | 4,041 | 4,548 | 5,564 | 6,689 | 5,862 | 4,174 | ||||||||||||
Central and Eastern Europe | ||||||||||||||||||||||||
Conventional natural gas (mmcf/d) | 0.22 | 0.28 | 0.63 | 0.67 | 0.80 | 2.89 | 3.27 | 1.66 | — | — | — | 2.86 | ||||||||||||
Total (boe/d) | 36 | 46 | 104 | 111 | 132 | 483 | 546 | 276 | — | — | — | 477 | ||||||||||||
Consolidated | ||||||||||||||||||||||||
Light and medium crude oil (bbls/d) | 34,245 | 32,698 | 34,556 | 35,793 | 37,951 | 39,899 | 40,157 | 42,024 | 43,084 | 43,938 | 45,001 | 43,625 | ||||||||||||
Condensate (1) (bbls/d) | 4,532 | 5,656 | 4,648 | 4,762 | 5,289 | 5,142 | 4,724 | 4,237 | 4,158 | 5,026 | 4,181 | 4,053 | ||||||||||||
Other NGLs (1) (bbls/d) | 8,068 | 8,695 | 8,074 | 8,627 | 9,509 | 9,588 | 8,022 | 8,160 | 7,772 | 8,107 | 7,897 | 7,815 | ||||||||||||
NGLs (bbls/d) | 12,600 | 14,351 | 12,722 | 13,389 | 14,798 | 14,730 | 12,746 | 12,397 | 11,930 | 13,133 | 12,078 | 11,868 | ||||||||||||
Conventional natural gas (mmcf/d) | 226.73 | 235.72 | 233.98 | 232.00 | 256.34 | 274.42 | 265.51 | 260.72 | 253.36 | 275.60 | 277.96 | 276.77 | ||||||||||||
Total (boe/d) | 84,633 | 86,335 | 86,276 | 87,848 | 95,471 | 100,366 | 97,154 | 97,875 | 97,239 | 103,003 | 103,404 | 101,621 |
Vermilion Energy Inc. ■ Page 37 ■ 2021 Third Quarter Report |
YTD 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||
Canada | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 17,144 | 21,106 | 23,971 | 17,400 | 6,015 | 6,657 | ||||||||||||
Condensate (1) (bbls/d) | 4,846 | 4,886 | 4,295 | 3,754 | 3,036 | 2,514 | ||||||||||||
Other NGLs (1) (bbls/d) | 7,214 | 7,719 | 6,988 | 5,914 | 4,144 | 2,552 | ||||||||||||
NGLs (bbls/d) | 12,060 | 12,605 | 11,283 | 9,668 | 7,180 | 5,066 | ||||||||||||
Conventional natural gas (mmcf/d) | 141.13 | 151.38 | 148.35 | 129.37 | 97.89 | 84.29 | ||||||||||||
Total (boe/d) | 52,726 | 58,942 | 59,979 | 48,630 | 29,510 | 25,771 | ||||||||||||
United States | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 2,581 | 3,046 | 2,514 | 1,069 | 662 | 393 | ||||||||||||
Condensate (1) (bbls/d) | 2 | 5 | 18 | 8 | 4 | — | ||||||||||||
Other NGLs (1) (bbls/d) | 1,065 | 1,218 | 996 | 452 | 50 | 29 | ||||||||||||
NGLs (bbls/d) | 1,067 | 1,223 | 1,014 | 460 | 54 | 29 | ||||||||||||
Conventional natural gas (mmcf/d) | 6.08 | 7.47 | 6.89 | 2.78 | 0.39 | 0.21 | ||||||||||||
Total (boe/d) | 4,660 | 5,514 | 4,675 | 1,992 | 781 | 457 | ||||||||||||
France | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 8,916 | 8,903 | 10,435 | 11,362 | 11,084 | 11,896 | ||||||||||||
Conventional natural gas (mmcf/d) | — | — | 0.19 | 0.21 | — | 0.44 | ||||||||||||
Total (boe/d) | 8,916 | 8,903 | 10,467 | 11,396 | 11,085 | 11,970 | ||||||||||||
Netherlands | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 4 | 1 | 3 | — | — | — | ||||||||||||
Condensate (1) (bbls/d) | 97 | 88 | 88 | 90 | 90 | 88 | ||||||||||||
NGLs (bbls/d) | 97 | 88 | 88 | 90 | 90 | 88 | ||||||||||||
Conventional natural gas (mmcf/d) | 40.51 | 46.16 | 49.10 | 46.13 | 40.54 | 47.82 | ||||||||||||
Total (boe/d) | 6,853 | 7,782 | 8,274 | 7,779 | 6,847 | 8,058 | ||||||||||||
Germany | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 1,016 | 968 | 917 | 1,004 | 1,060 | — | ||||||||||||
Conventional natural gas (mmcf/d) | 15.08 | 12.65 | 15.31 | 15.66 | 19.39 | 14.90 | ||||||||||||
Total (boe/d) | 3,529 | 3,076 | 3,468 | 3,614 | 4,291 | 2,483 | ||||||||||||
Ireland | ||||||||||||||||||
Conventional natural gas (mmcf/d) | 28.96 | 37.44 | 46.57 | 55.17 | 58.43 | 50.89 | ||||||||||||
Total (boe/d) | 4,826 | 6,240 | 7,762 | 9,195 | 9,737 | 8,482 | ||||||||||||
Australia | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 4,170 | 4,416 | 5,662 | 4,494 | 5,770 | 6,304 | ||||||||||||
Total (boe/d) | 4,170 | 4,416 | 5,662 | 4,494 | 5,770 | 6,304 | ||||||||||||
Central and Eastern Europe | ||||||||||||||||||
Conventional natural gas (mmcf/d) | 0.37 | 1.90 | 0.42 | 1.02 | — | — | ||||||||||||
Total (boe/d) | 62 | 317 | 70 | 169 | — | — | ||||||||||||
Consolidated | ||||||||||||||||||
Light and medium crude oil (bbls/d) | 33,832 | 38,441 | 43,502 | 35,329 | 24,591 | 25,250 | ||||||||||||
Condensate (1) (bbls/d) | 4,945 | 4,980 | 4,400 | 3,853 | 3,130 | 2,602 | ||||||||||||
Other NGLs (1) (bbls/d) | 8,279 | 8,937 | 7,984 | 6,366 | 4,194 | 2,582 | ||||||||||||
NGLs (bbls/d) | 13,224 | 13,917 | 12,384 | 10,219 | 7,324 | 5,184 | ||||||||||||
Conventional natural gas (mmcf/d) | 232.12 | 256.99 | 266.82 | 250.33 | 216.64 | 198.55 | ||||||||||||
Total (boe/d) | 85,742 | 95,190 | 100,357 | 87,270 | 68,021 | 63,526 |
(1) | Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include segmentation by product type as defined in the instrument. This table provides a reconciliation from "crude oil and condensate", "NGLs" and "natural gas" to the product types. In this report, references to "crude oil" and "light and medium crude oil" mean "light crude oil and medium crude oil" and references to "natural gas" mean "conventional natural gas". Production volumes reported are based on quantities as measured at the first point of sale. |
Vermilion Energy Inc. ■ Page 38 ■ 2021 Third Quarter Report |
Supplemental Table 5: Operational and Financial Data by Core Region
Production volumes (1)
Q3/21 | Q2/21 | Q1/21 | Q4/20 | Q3/20 | Q2/20 | Q1/20 | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | |||||||||||||
North America | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 24,757 | 24,316 | 24,645 | 26,459 | 28,296 | 31,569 | 29,888 | 30,560 | 30,403 | 31,329 | 30,905 | 31,163 | ||||||||||||
NGLs (bbls/d) | 8,068 | 8,695 | 8,074 | 8,628 | 9,508 | 9,588 | 8,022 | 8,161 | 7,772 | 8,106 | 7,897 | 7,814 | ||||||||||||
Natural gas (mmcf/d) | 145.18 | 152.06 | 144.36 | 142.13 | 163.09 | 172.43 | 157.88 | 153.34 | 151.52 | 158.93 | 157.26 | 152.30 | ||||||||||||
Total (boe/d) | 57,022 | 58,354 | 56,780 | 58,774 | 64,986 | 69,895 | 64,222 | 64,276 | 63,429 | 65,921 | 65,013 | 64,359 | ||||||||||||
International | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 14,020 | 14,037 | 14,560 | 14,096 | 14,943 | 13,471 | 14,994 | 15,702 | 16,838 | 17,636 | 18,275 | 16,516 | ||||||||||||
Natural gas (mmcf/d) | 81.55 | 83.66 | 89.62 | 89.86 | 93.25 | 101.99 | 107.63 | 107.38 | 101.83 | 116.67 | 120.70 | 124.48 | ||||||||||||
Total (boe/d) | 27,612 | 27,981 | 29,495 | 29,073 | 30,484 | 30,472 | 32,932 | 33,598 | 33,811 | 37,081 | 38,391 | 37,262 | ||||||||||||
Consolidated | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 38,777 | 38,354 | 39,204 | 40,555 | 43,240 | 45,041 | 44,881 | 46,261 | 47,242 | 48,964 | 49,182 | 47,678 | ||||||||||||
NGLs (bbls/d) | 8,068 | 8,695 | 8,074 | 8,627 | 9,509 | 9,588 | 8,022 | 8,160 | 7,772 | 8,107 | 7,897 | 7,815 | ||||||||||||
Natural gas (mmcf/d) | 226.73 | 235.72 | 233.98 | 232.00 | 256.34 | 274.42 | 265.51 | 260.72 | 253.36 | 275.60 | 277.96 | 276.77 | ||||||||||||
Total (boe/d) | 84,633 | 86,335 | 86,276 | 87,848 | 95,471 | 100,366 | 97,154 | 97,875 | 97,239 | 103,003 | 103,404 | 101,621 |
(1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
Sales volumes
Q3/21 | Q2/21 | Q1/21 | Q4/20 | Q3/20 | Q2/20 | Q1/20 | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | |||||||||||||
North America | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 24,757 | 24,316 | 24,645 | 26,459 | 28,297 | 31,569 | 29,888 | 30,560 | 30,404 | 31,327 | 30,906 | 31,162 | ||||||||||||
NGLs (bbls/d) | 8,068 | 8,695 | 8,074 | 8,628 | 9,508 | 9,588 | 8,022 | 8,161 | 7,772 | 8,106 | 7,897 | 7,814 | ||||||||||||
Natural gas (mmcf/d) | 145.18 | 152.06 | 144.36 | 142.13 | 163.09 | 172.43 | 157.88 | 153.34 | 151.52 | 158.93 | 157.26 | 152.30 | ||||||||||||
Total (boe/d) | 57,022 | 58,354 | 56,780 | 58,774 | 64,986 | 69,895 | 64,222 | 64,276 | 63,429 | 65,921 | 65,013 | 64,359 | ||||||||||||
International | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 15,227 | 13,859 | 11,421 | 15,359 | 15,689 | 12,202 | 17,090 | 13,864 | 18,575 | 16,009 | 20,163 | 16,458 | ||||||||||||
Natural gas (mmcf/d) | 81.55 | 83.66 | 89.62 | 89.86 | 93.25 | 101.99 | 107.63 | 107.38 | 101.83 | 116.67 | 120.70 | 124.48 | ||||||||||||
Total (boe/d) | 28,820 | 27,802 | 26,357 | 30,336 | 31,229 | 29,201 | 35,028 | 31,760 | 35,547 | 35,454 | 40,279 | 37,204 | ||||||||||||
Consolidated | ||||||||||||||||||||||||
Crude oil and condensate (bbls/d) | 39,985 | 38,174 | 36,066 | 41,818 | 43,985 | 43,771 | 46,977 | 44,423 | 48,979 | 47,337 | 51,068 | 47,620 | ||||||||||||
NGLs (bbls/d) | 8,068 | 8,695 | 8,074 | 8,627 | 9,509 | 9,588 | 8,022 | 8,160 | 7,772 | 8,107 | 7,897 | 7,815 | ||||||||||||
Natural gas (mmcf/d) | 226.73 | 235.72 | 233.98 | 232.00 | 256.34 | 274.42 | 265.51 | 260.72 | 253.36 | 275.60 | 277.96 | 276.77 | ||||||||||||
Total (boe/d) | 85,841 | 86,156 | 83,138 | 89,111 | 96,217 | 99,096 | 99,250 | 96,037 | 98,976 | 101,377 | 105,291 | 101,563 |
Vermilion Energy Inc. ■ Page 39 ■ 2021 Third Quarter Report |
Financial results
Q3/21 | Q2/21 | Q1/21 | Q4/20 | Q3/20 | Q2/20 | Q1/20 | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | |||||||||||||
North America | ||||||||||||||||||||||||
Crude oil and condensate sales ($/bbl) | 82.23 | 75.43 | 66.31 | 51.06 | 49.79 | 28.94 | 50.25 | 66.31 | 66.67 | 72.40 | 65.95 | 54.90 | ||||||||||||
NGL sales ($/bbl) | 35.55 | 25.43 | 29.39 | 19.20 | 15.04 | 8.94 | 8.92 | 14.63 | 6.14 | 11.25 | 22.49 | 25.70 | ||||||||||||
Natural gas sales ($/mcf) | 3.80 | 2.72 | 3.98 | 2.77 | 2.02 | 1.60 | 1.92 | 2.29 | 1.18 | 1.15 | 2.52 | 1.79 | ||||||||||||
Sales ($/boe) | 50.40 | 42.30 | 43.08 | 32.51 | 28.94 | 18.24 | 29.22 | 38.86 | 35.52 | 38.56 | 40.17 | 33.94 | ||||||||||||
Royalties ($/boe) | (7.14) | (5.98) | (5.49) | (3.64) | (3.58) | (1.67) | (3.54) | (4.98) | (4.93) | (4.22) | (5.00) | (5.01) | ||||||||||||
Transportation ($/boe) | (1.92) | (1.90) | (2.05) | (1.92) | (1.74) | (1.72) | (1.91) | (1.76) | (1.78) | (1.63) | (1.83) | (1.88) | ||||||||||||
Operating ($/boe) | (11.02) | (10.89) | (11.21) | (10.94) | (7.82) | (9.60) | (11.93) | (11.15) | (10.67) | (10.66) | (11.46) | (10.96) | ||||||||||||
General and administration ($/boe) | (1.14) | (0.91) | (1.34) | (1.94) | (0.78) | (1.52) | (0.84) | (0.97) | (0.60) | (1.04) | (0.83) | (0.28) | ||||||||||||
Corporate income taxes ($/boe) | (0.05) | (0.04) | (0.04) | 0.04 | (0.02) | (0.02) | (0.04) | (0.11) | 0.09 | (0.02) | (0.03) | 0.10 | ||||||||||||
PRRT ($/boe) | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||
Fund flows netback ($/boe) | 29.12 | 22.58 | 22.94 | 14.12 | 14.99 | 3.72 | 10.96 | 19.89 | 17.63 | 20.99 | 21.03 | 15.91 | ||||||||||||
Fund flows from operations | 152,764 | 119,916 | 117,227 | 76,375 | 89,635 | 23,639 | 64,048 | 117,623 | 102,867 | 125,893 | 123,071 | 94,200 | ||||||||||||
Capital expenditures | (35,179) | (38,847) | (59,113) | (33,781) | (9,575) | (23,979) | (197,926) | (69,775) | (91,027) | (42,047) | (148,091) | (93,092) | ||||||||||||
Free cash flow | 117,585 | 81,069 | 58,114 | 42,594 | 80,060 | (340) | (133,878) | 47,848 | 11,840 | 83,846 | (25,020) | 1,108 | ||||||||||||
International | ||||||||||||||||||||||||
Crude oil and condensate sales ($/bbl) | 94.91 | 85.41 | 81.40 | 62.65 | 58.19 | 50.27 | 73.35 | 82.14 | 84.55 | 93.28 | 84.95 | 87.56 | ||||||||||||
Natural gas sales ($/mcf) | 18.82 | 9.83 | 7.98 | 6.27 | 2.91 | 2.28 | 4.44 | 5.49 | 4.29 | 5.73 | 8.46 | 10.78 | ||||||||||||
Sales ($/boe) | 103.39 | 72.16 | 62.39 | 50.30 | 37.94 | 28.98 | 49.42 | 54.42 | 56.46 | 60.98 | 67.87 | 74.80 | ||||||||||||
Royalties ($/boe) | (4.52) | (3.83) | (3.53) | (3.02) | (3.32) | (2.16) | (3.27) | (3.85) | (3.89) | (3.97) | (3.89) | (4.16) | ||||||||||||
Transportation ($/boe) | (3.47) | (4.64) | (2.76) | (2.40) | (2.28) | (2.04) | (1.94) | (1.77) | (2.76) | (3.40) | (1.66) | (1.70) | ||||||||||||
Operating ($/boe) | (17.55) | (16.56) | (16.42) | (16.99) | (15.18) | (14.35) | (16.13) | (15.28) | (13.13) | (11.76) | (15.28) | (13.89) | ||||||||||||
General and administration ($/boe) | (2.40) | (2.61) | (2.06) | (2.92) | (2.53) | (2.72) | (2.63) | (3.70) | (3.10) | (2.93) | (2.27) | (3.27) | ||||||||||||
Corporate income taxes ($/boe) | 0.64 | (0.19) | 0.66 | 2.25 | 0.04 | (0.02) | (0.11) | 2.22 | (1.55) | (3.63) | (4.30) | (2.49) | ||||||||||||
PRRT ($/boe) | (2.74) | (0.58) | (0.60) | (1.45) | (1.27) | (1.21) | (2.90) | (0.50) | (1.78) | (2.56) | (2.87) | 0.71 | ||||||||||||
Fund flows netback ($/boe) | 73.36 | 43.74 | 37.69 | 25.77 | 13.40 | 6.47 | 22.44 | 31.54 | 30.26 | 32.73 | 37.60 | 49.99 | ||||||||||||
Fund flows from operations | 194,505 | 110,654 | 89,403 | 71,934 | 38,498 | 17,193 | 71,526 | 92,160 | 98,955 | 105,600 | 136,298 | 171,119 | ||||||||||||
Capital expenditures | (31,271) | (40,329) | (24,250) | (26,113) | (21,755) | (18,295) | (35,778) | (30,850) | (36,852) | (50,560) | (53,962) | (70,488) | ||||||||||||
Free cash flow | 163,234 | 70,325 | 65,153 | 45,821 | 16,743 | (1,102) | 35,748 | 61,310 | 62,103 | 55,040 | 82,336 | 100,631 | ||||||||||||
Q3/21 | Q2/21 | Q1/21 | Q4/20 | Q3/20 | Q2/20 | Q1/20 | Q4/19 | Q3/19 | Q2/19 | Q1/19 | Q4/18 | |||||||||||||
Consolidated | ||||||||||||||||||||||||
Crude oil and condensate sales ($/bbl) | 87.05 | 79.06 | 71.09 | 55.31 | 52.79 | 34.89 | 58.66 | 71.25 | 73.45 | 79.46 | 73.45 | 66.19 | ||||||||||||
NGL sales ($/bbl) | 35.55 | 25.43 | 29.39 | 19.20 | 15.04 | 8.94 | 8.92 | 14.63 | 6.14 | 11.25 | 22.49 | 25.69 | ||||||||||||
Natural gas sales ($/mcf) | 9.20 | 5.24 | 5.51 | 4.13 | 2.34 | 1.85 | 2.94 | 3.61 | 2.43 | 3.09 | 5.10 | 5.83 | ||||||||||||
Sales ($/boe) | 68.19 | 51.93 | 49.20 | 38.57 | 31.86 | 21.40 | 36.35 | 44.01 | 43.04 | 46.40 | 50.77 | 48.90 | ||||||||||||
Royalties ($/boe) | (6.26) | (5.29) | (4.87) | (3.43) | (3.50) | (1.81) | (3.45) | (4.60) | (4.56) | (4.13) | (4.58) | (4.70) | ||||||||||||
Transportation ($/boe) | (2.44) | (2.78) | (2.27) | (2.08) | (1.92) | (1.81) | (1.92) | (1.76) | (2.13) | (2.25) | (1.76) | (1.81) | ||||||||||||
Operating ($/boe) | (13.21) | (12.72) | (12.86) | (13.00) | (10.21) | (11.00) | (13.41) | (12.52) | (11.55) | (11.04) | (12.92) | (12.04) | ||||||||||||
General and administration ($/boe) | (1.56) | (1.46) | (1.57) | (2.27) | (1.35) | (1.88) | (1.47) | (1.88) | (1.50) | (1.70) | (1.38) | (1.37) | ||||||||||||
Corporate income taxes ($/boe) | 0.18 | (0.09) | 0.18 | 0.80 | - | (0.02) | (0.06) | 0.66 | (0.50) | (1.28) | (1.66) | (0.85) | ||||||||||||
PRRT ($/boe) | (0.92) | (0.19) | (0.19) | (0.49) | (0.41) | (0.36) | (1.02) | (0.16) | (0.64) | (0.90) | (1.10) | 0.26 | ||||||||||||
Interest ($/boe) | (2.37) | (2.41) | (2.57) | (2.42) | (1.97) | (1.98) | (2.21) | (2.17) | (2.16) | (2.34) | (2.21) | (2.23) | ||||||||||||
Realized derivatives ($/boe) | (9.19) | (5.05) | (3.43) | 0.10 | 0.47 | 6.07 | 5.47 | 2.57 | 4.06 | 1.54 | 1.09 | (3.03) | ||||||||||||
Realized foreign exchange ($/boe) | 0.37 | (0.25) | (0.69) | 0.16 | (0.31) | 0.44 | 0.94 | 0.23 | (0.37) | (0.17) | (0.22) | 0.63 | ||||||||||||
Realized other ($/boe) | 0.48 | 0.35 | 0.73 | 0.56 | 0.29 | 0.03 | (0.37) | 0.03 | 0.04 | 0.02 | 0.73 | 0.03 | ||||||||||||
Fund flows netback ($/boe) | 33.26 | 22.06 | 21.66 | 16.49 | 12.97 | 9.08 | 18.85 | 24.40 | 23.74 | 24.14 | 26.76 | 23.80 | ||||||||||||
Fund flows from operations | 262,696 | 172,942 | 162,051 | 135,212 | 114,776 | 81,852 | 170,225 | 215,592 | 216,153 | 222,738 | 253,572 | 222,342 | ||||||||||||
Capital expenditures | (66,450) | (79,176) | (83,363) | (59,894) | (31,330) | (42,274) | (233,704) | (100,625) | (127,879) | (92,607) | (202,053) | (163,580) | ||||||||||||
Free cash flow | 196,246 | 93,766 | 78,688 | 75,318 | 83,446 | 39,578 | (63,479) | 114,967 | 88,274 | 130,131 | 51,519 | 58,762 |
Vermilion Energy Inc. ■ Page 40 ■ 2021 Third Quarter Report |
Non-GAAP Financial Measures
This MD&A includes references to certain financial measures which do not have standardized meanings and may not be comparable to similar measures presented by other issuers. These financial measures include fund flows from operations, a measure of profit or loss in accordance with IFRS 8 “Operating Segments” (please see Segmented Information in the Notes to the Condensed Consolidated Interim Financial Statements) and net debt, a measure of capital in accordance with IAS 1 “Presentation of Financial Statements” (please see Capital Disclosures in the Notes to the Condensed Consolidated Interim Financial Statements).
In addition, this MD&A includes financial measures which are not specified, defined, or determined under IFRS and are therefore considered non-GAAP financial measures and may not be comparable to similar measures presented by other issuers. These non-GAAP financial measures include:
Acquisitions: The sum of acquisitions from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed plus or net of acquired working capital deficit or surplus. We believe that including these components provides a useful measure of the economic investment associated with our acquisition activity.
Capital expenditures: The sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. We consider capital expenditures to be a useful measure of our investment in our existing asset base. Capital expenditures are also referred to as E&D capital.
Cash dividends per share: Represents cash dividends declared per share and is a useful measure of the dividends a common shareholder was entitled to during the period.
Covenants: The financial covenants on our revolving credit facility contain non-GAAP measures. The definitions for these financial covenants are included in Financial Position Review.
Diluted shares outstanding: The sum of shares outstanding at the period end plus outstanding awards under the VIP, based on current estimates of future performance factors and forfeiture rates.
Free cash flow: Represents fund flows from operations in excess of capital expenditures. We use free cash flow to determine the funding available for investing and financing activities, including payment of dividends, repayment of long-term debt, reallocation to existing business units, and deployment into new ventures. We also assess free cash flow as a percentage of fund flows from operations, which is a measure of the percentage of fund flows from operations that is retained for incremental investing and financing activities.
Fund flows from operations per basic and diluted share: Management assesses fund flows from operations on a per share basis as we believe this provides a measure of our operating performance after taking into account the issuance and potential future issuance of Vermilion common shares. Fund flows from operations per basic share is calculated by dividing fund flows from operations by the basic weighted average shares outstanding as defined under IFRS. Fund flows from operations per diluted share is calculated by dividing fund flows from operations by the sum of basic weighted average shares outstanding and incremental shares issuable under the equity based compensation plans as determined using the treasury stock method.
Net dividends: We define net dividends as dividends declared less proceeds received for the issuance of shares pursuant to the Dividend Reinvestment Plan. Management monitors net dividends and net dividends as a percentage of fund flows from operations to assess our ability to pay dividends.
Operating netback: Sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses presented on a per unit basis. Management assesses operating netback as a measure of the profitability and efficiency of our field operations. In contrast, fund flows from operations netback also includes general and administration expense, corporate income taxes, and interest. Fund flows from operations netback is used by management to assess the profitability of our business units and Vermilion as a whole.
Payout: We define payout as net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled. Management uses payout and payout as a percentage of fund flows from operations (also referred to as the payout or sustainability ratio) to assess the amount of cash distributed back to shareholders and re-invested in the business for maintaining production and organic growth.
Return on capital employed (ROCE): ROCE is a measure that we use to analyze our profitability and the efficiency of our capital allocation process. ROCE is calculated by dividing net earnings before interest and taxes ("EBIT") by average capital employed over the preceding twelve months. Capital employed is calculated as total assets less current liabilities while average capital employed is calculated using the balance sheets at the beginning and end of the twelve-month period.
Vermilion Energy Inc. ■ Page 41 ■ 2021 Third Quarter Report |
The following tables reconcile net dividends, payout, and diluted shares outstanding from their most directly comparable GAAP measures as presented in our financial statements:
($M) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | ||||
Dividends declared | — | — | — | 90,067 | ||||
Shares issued for the Dividend Reinvestment Plan | — | — | — | (8,277) | ||||
Net dividends | — | — | — | 81,790 | ||||
Drilling and development | 63,173 | 29,762 | 220,388 | 299,578 | ||||
Exploration and evaluation | 3,277 | 1,568 | 8,601 | 7,730 | ||||
Asset retirement obligations settled | 5,142 | 2,305 | 15,486 | 7,007 | ||||
Payout | 71,592 | 33,635 | 244,475 | 396,105 | ||||
% of fund flows from operations | 27 | % | 29 | % | 41 | % | 108 | % |
('000s of shares) | Q3 2021 | Q3 2020 | ||
Shares outstanding | 161,985 | 158,308 | ||
Potential shares issuable pursuant to the VIP | 7,027 | 5,492 | ||
Diluted shares outstanding | 169,012 | 163,800 |
The following table reconciles the calculation of return on capital employed:
Twelve Months Ended | ||||
($M) | Sep 30, 2021 | Sep 30, 2020 | ||
Net earnings (loss) | 746,401 | (1,458,243) | ||
Taxes | 186,099 | (348,533) | ||
Interest expense | 76,604 | 74,438 | ||
EBIT | 1,009,104 | (1,732,338) | ||
Average capital employed | 4,324,592 | 4,679,796 | ||
Return on capital employed | 23 | % | (37) | % |
Vermilion Energy Inc. ■ Page 42 ■ 2021 Third Quarter Report |
Consolidated Interim Financial Statements
Consolidated Balance Sheet
thousands of Canadian dollars, unaudited
Note | September 30, 2021 | December 31, 2020 | |||
Assets | |||||
Current | |||||
Cash and cash equivalents | — | 6,904 | |||
Accounts receivable | 281,572 | 196,077 | |||
Crude oil inventory | 22,782 | 13,402 | |||
Derivative instruments | 131,788 | 16,924 | |||
Prepaid expenses | 23,975 | 27,686 | |||
Total current assets | 460,117 | 260,993 | |||
Derivative instruments | — | 2,451 | |||
Deferred taxes | 373,979 | 484,497 | |||
Exploration and evaluation assets | 237,344 | 254,094 | |||
Capital assets | 3 | 4,678,193 | 3,107,104 | ||
Total assets | 5,749,633 | 4,109,139 | |||
Liabilities | |||||
Current | |||||
Accounts payable and accrued liabilities | 364,519 | 297,670 | |||
Derivative instruments | 509,817 | 130,919 | |||
Income taxes payable | 21,640 | 4,539 | |||
Total current liabilities | 895,976 | 433,128 | |||
Derivative instruments | 95,101 | 8,228 | |||
Long-term debt | 6 | 1,760,342 | 1,933,848 | ||
Lease obligations | 67,106 | 76,524 | |||
Asset retirement obligations | 4 | 876,949 | 467,737 | ||
Deferred taxes | 318,790 | 264,272 | |||
Total liabilities | 4,014,264 | 3,183,737 | |||
Shareholders' Equity | |||||
Shareholders' capital | 7 | 4,236,501 | 4,181,160 | ||
Contributed surplus | 47,734 | 66,250 | |||
Accumulated other comprehensive income | 48,946 | 77,986 | |||
Deficit | (2,597,812) | (3,399,994) | |||
Total shareholders' equity | 1,735,369 | 925,402 | |||
Total liabilities and shareholders' equity | 5,749,633 | 4,109,139 |
Approved by the Board
(Signed "Robert Michaleski”) | (Signed “Lorenzo Donadeo”) | |
Robert Michaleski, Director | Lorenzo Donadeo, Director |
Vermilion Energy Inc. ■ Page 43 ■ 2021 Third Quarter Report |
Consolidated Statements of Net (Loss) Earnings and Comprehensive (Loss) Income
thousands of Canadian dollars, except share and per share amounts, unaudited
Three Months Ended | Nine Months Ended | ||||||||
Note | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | |||||
Revenue | |||||||||
Petroleum and natural gas sales | 538,530 | 282,020 | 1,313,846 | 803,347 | |||||
Royalties | (49,435) | (30,969) | (127,337) | (78,446) | |||||
Sales of purchased commodities | 35,540 | 23,725 | 109,155 | 95,951 | |||||
Petroleum and natural gas revenue | 524,635 | 274,776 | 1,295,664 | 820,852 | |||||
Expenses | |||||||||
Purchased commodities | 35,540 | 23,725 | 109,155 | 95,951 | |||||
Operating | 104,355 | 90,362 | 300,333 | 310,675 | |||||
Transportation | 19,273 | 16,959 | 58,128 | 50,654 | |||||
Equity based compensation | 7,823 | 9,733 | 34,899 | 31,894 | |||||
Loss (gain) on derivative instruments | 351,972 | 35,457 | 491,145 | (74,211) | |||||
Interest expense | 18,699 | 17,400 | 56,796 | 55,269 | |||||
General and administration | 12,341 | 11,969 | 35,503 | 42,198 | |||||
Foreign exchange loss (gain) | 24,956 | (13,171) | 76,303 | (8,274) | |||||
Other (income) expense | (3,588) | (2,370) | (11,437) | 1,132 | |||||
Accretion | 4 | 11,199 | 9,158 | 32,569 | 26,184 | ||||
Depletion and depreciation | 3 | 167,808 | 167,728 | 423,472 | 432,242 | ||||
Impairment (reversal) expense | 3 | (22,225) | 47,777 | (1,278,697) | 1,682,344 | ||||
Gain on business combinations | 3 | — | — | (17,198) | — | ||||
728,153 | 414,727 | 310,971 | 2,646,058 | ||||||
(Loss) earnings before income taxes | (203,518) | (139,951) | 984,693 | (1,825,206) | |||||
Income tax (recovery) expense | |||||||||
Deferred | 3 | (62,245) | (73,653) | 172,509 | (382,321) | ||||
Current | 5,857 | 3,628 | 8,076 | 16,835 | |||||
(56,388) | (70,025) | 180,585 | (365,486) | ||||||
Net (loss) earnings | (147,130) | (69,926) | 804,108 | (1,459,720) | |||||
Other comprehensive (loss) income | |||||||||
Currency translation adjustments | 11,244 | 7,342 | (33,936) | 73,764 | |||||
Unrealized gain (loss) on hedges | 1,632 | 1,285 | 4,896 | (38,336) | |||||
Comprehensive (loss) income | (134,254) | (61,299) | 775,068 | (1,424,292) | |||||
Net (loss) earnings per share | |||||||||
Basic | (0.91) | (0.44) | 5.00 | (9.26) | |||||
Diluted | (0.91) | (0.44) | 4.91 | (9.26) | |||||
Weighted average shares outstanding ('000s) | |||||||||
Basic | 161,957 | 158,307 | 160,809 | 157,688 | |||||
Diluted | 161,957 | 158,307 | 163,693 | 157,688 |
Vermilion Energy Inc. ■ Page 44 ■ 2021 Third Quarter Report |
Consolidated Statements of Cash Flows
thousands of Canadian dollars, unaudited
Three Months Ended | Nine Months Ended | ||||||||
Note | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | |||||
Operating | |||||||||
Net (loss) earnings | (147,130) | (69,926) | 804,108 | (1,459,720) | |||||
Adjustments: | |||||||||
Accretion | 4 | 11,199 | 9,158 | 32,569 | 26,184 | ||||
Depletion and depreciation | 3 | 167,808 | 167,728 | 423,472 | 432,242 | ||||
Impairment (reversal) expense | 3 | (22,225) | 47,777 | (1,278,697) | 1,682,344 | ||||
Gain on business combinations | 3 | — | — | (17,198) | — | ||||
Unrealized loss on derivative instruments | 279,393 | 39,637 | 353,359 | 34,092 | |||||
Equity based compensation | 7,823 | 9,733 | 34,899 | 31,894 | |||||
Unrealized foreign exchange loss (gain) | 27,877 | (15,885) | 72,085 | 1,507 | |||||
Unrealized other expense | 196 | 207 | 583 | 631 | |||||
Deferred taxes | (62,245) | (73,653) | 172,509 | (382,321) | |||||
Asset retirement obligations settled | 4 | (5,142) | (2,305) | (15,486) | (7,007) | ||||
Changes in non-cash operating working capital | (46,006) | (18,692) | 1,898 | 5,204 | |||||
Cash flows from operating activities | 211,548 | 93,779 | 584,101 | 365,050 | |||||
Investing | |||||||||
Drilling and development | 3 | (63,173) | (29,762) | (220,388) | (299,578) | ||||
Exploration and evaluation | (3,277) | (1,568) | (8,601) | (7,730) | |||||
Acquisitions | 3 | (92,191) | (6,720) | (104,780) | (20,989) | ||||
Changes in non-cash investing working capital | (4,289) | (3,775) | (1,058) | (22,519) | |||||
Cash flows used in investing activities | (162,930) | (41,825) | (334,827) | (350,816) | |||||
Financing | |||||||||
(Repayments) borrowings on the revolving credit facility | 6 | (42,646) | (45,428) | (238,137) | 99,527 | ||||
Payments on lease obligations | (5,712) | (5,769) | (17,279) | (19,219) | |||||
Cash dividends | — | — | — | (117,737) | |||||
Cash flows used in financing activities | (48,358) | (51,197) | (255,416) | (37,429) | |||||
Foreign exchange loss on cash held in foreign currencies | (260) | (204) | (762) | (494) | |||||
Net change in cash and cash equivalents | — | 553 | (6,904) | (23,689) | |||||
Cash and cash equivalents, beginning of period | — | 4,786 | 6,904 | 29,028 | |||||
Cash and cash equivalents, end of period | — | 5,339 | — | 5,339 | |||||
Supplementary information for cash flows from operating activities | |||||||||
Interest paid | 24,479 | 27,970 | 61,405 | 66,125 | |||||
Income taxes (refunded) paid | (2,291) | 8,551 | (9,025) | 3,423 |
Vermilion Energy Inc. ■ Page 45 ■ 2021 Third Quarter Report |
Consolidated Statements of Changes in Shareholders' Equity
thousands of Canadian dollars, unaudited
Nine Months Ended | |||||
Note | Sep 30, 2021 | Sep 30, 2020 | |||
Shareholders' capital | 7 | ||||
Balance, beginning of period | 4,181,160 | 4,119,031 | |||
Shares issued for the Dividend Reinvestment Plan | — | 8,277 | |||
Vesting of equity based awards | 45,051 | 43,527 | |||
Equity based compensation | 8,364 | 2,118 | |||
Share-settled dividends on vested equity based awards | 1,926 | 1,361 | |||
Balance, end of period | 4,236,501 | 4,174,314 | |||
Contributed surplus | 7 | ||||
Balance, beginning of period | 66,250 | 75,735 | |||
Equity based compensation | 26,535 | 29,776 | |||
Vesting of equity based awards | (45,051) | (43,527) | |||
Balance, end of period | 47,734 | 61,984 | |||
Accumulated other comprehensive income | |||||
Balance, beginning of period | 77,986 | 49,578 | |||
Currency translation adjustments | (33,936) | 73,764 | |||
Hedge accounting reserve | 4,896 | (38,336) | |||
Balance, end of period | 48,946 | 85,006 | |||
Deficit | |||||
Balance, beginning of period | (3,399,994) | (1,791,039) | |||
Net earnings (loss) | 804,108 | (1,459,720) | |||
Dividends declared | — | (90,067) | |||
Share-settled dividends on vested equity based awards | (1,926) | (1,361) | |||
Balance, end of period | (2,597,812) | (3,342,187) | |||
Total shareholders' equity | 1,735,369 | 979,117 |
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 unvested equity based awards that will be settled in shares. Once vested, the value of the awards are transferred to shareholders’ capital.
Accumulated other comprehensive income
Represents currency translation adjustments and hedge accounting reserve.
Currency translation adjustments result from translating the balance sheets of subsidiaries with a foreign functional currency to Canadian dollars at period-end rates. These amounts may be reclassified to net earnings if there is a disposal or partial disposal of a subsidiary.
The hedge accounting reserve represents the effective portion of the change in fair value related to cash flow and net investment hedges recognized in other comprehensive income, net of tax and reclassified to the consolidated statement of net earnings in the same period in which the transaction associated with the hedged item occurs. For the nine months ended September 30, 2021, accumulated losses of $3.7 million and $1.2 million were recognized in the consolidated statement of net earnings on the cash flow hedges and net investment hedges, respectively, and will be recognized in net earnings through 2025 when the senior unsecured notes mature.
Deficit
Represents the cumulative net earnings less distributed earnings of Vermilion Energy Inc.
Vermilion Energy Inc. ■ Page 46 ■ 2021 Third Quarter Report |
Notes to the Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2021 and 2020
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 International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. These condensed consolidated interim financial statements have been prepared using the same accounting policies and methods of computation as Vermilion’s consolidated financial statements for the year ended December 31, 2020.
These condensed consolidated interim financial statements should be read in conjunction with Vermilion’s consolidated financial statements for the year ended December 31, 2020, which are contained within Vermilion’s Annual Report for the year ended December 31, 2020 and are available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors of Vermilion on
November 9, 2021.
Vermilion Energy Inc. ■ Page 47 ■ 2021 Third Quarter Report |
2. Segmented information |
Three Months Ended September 30, 2021 | ||||||||||||||||||
Canada | USA | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | ||||||||||
Drilling and development | 29,660 | 5,519 | 8,796 | 2,663 | 3,187 | 918 | 6,073 | 6,357 | 63,173 | |||||||||
Exploration and evaluation | — | — | 90 | 126 | 131 | — | — | 2,930 | 3,277 | |||||||||
Crude oil and condensate sales | 158,844 | 28,441 | 79,817 | 809 | 8,285 | — | 44,044 | — | 320,240 | |||||||||
NGL sales | 21,664 | 4,726 | — | — | — | — | — | — | 26,390 | |||||||||
Natural gas sales | 48,011 | 2,707 | — | 68,438 | 24,658 | 47,817 | — | 269 | 191,900 | |||||||||
Sales of purchased commodities | — | — | — | — | — | — | — | 35,540 | 35,540 | |||||||||
Royalties | (27,812) | (9,632) | (11,089) | (229) | (616) | — | — | (57) | (49,435) | |||||||||
Revenue from external customers | 200,707 | 26,242 | 68,728 | 69,018 | 32,327 | 47,817 | 44,044 | 35,752 | 524,635 | |||||||||
Purchased commodities | — | — | — | — | — | — | — | (35,540) | (35,540) | |||||||||
Transportation | (9,526) | (559) | (6,400) | — | (1,708) | (1,080) | — | — | (19,273) | |||||||||
Operating | (53,076) | (4,758) | (13,523) | (8,514) | (6,717) | (2,968) | (14,684) | (115) | (104,355) | |||||||||
General and administration | (4,735) | (1,351) | (2,917) | (155) | (1,163) | (306) | (875) | (839) | (12,341) | |||||||||
PRRT | — | — | — | — | — | — | (7,271) | — | (7,271) | |||||||||
Corporate income taxes | — | — | 12,403 | (10,624) | — | — | (89) | (276) | 1,414 | |||||||||
Interest expense | — | — | — | — | — | — | — | (18,699) | (18,699) | |||||||||
Realized loss on derivative instruments | — | — | — | — | — | — | — | (72,579) | (72,579) | |||||||||
Realized foreign exchange gain | — | — | — | — | — | — | — | 2,921 | 2,921 | |||||||||
Realized other income | — | — | — | — | — | — | — | 3,784 | 3,784 | |||||||||
Fund flows from operations | 133,370 | 19,574 | 58,291 | 49,725 | 22,739 | 43,463 | 21,125 | (85,591) | 262,696 | |||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||
Canada | USA | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | ||||||||||
Drilling and development | 3,837 | 5,738 | 12,601 | 1,538 | 1,092 | 928 | 3,926 | 102 | 29,762 | |||||||||
Exploration and evaluation | — | — | 37 | 15 | 466 | — | — | 1,050 | 1,568 | |||||||||
Crude oil and condensate sales | 113,065 | 16,553 | 48,976 | 423 | 4,009 | — | 30,537 | 49 | 213,612 | |||||||||
NGL sales | 11,379 | 1,778 | — | — | — | — | — | — | 13,157 | |||||||||
Natural gas sales | 28,930 | 1,324 | — | 11,928 | 2,498 | 10,472 | — | 99 | 55,251 | |||||||||
Sales of purchased commodities | — | — | — | — | — | — | — | 23,725 | 23,725 | |||||||||
Royalties | (16,259) | (5,164) | (8,902) | (96) | (443) | — | — | (105) | (30,969) | |||||||||
Revenue from external customers | 137,115 | 14,491 | 40,074 | 12,255 | 6,064 | 10,472 | 30,537 | 23,768 | 274,776 | |||||||||
Purchased commodities | — | — | — | — | — | — | — | (23,725) | (23,725) | |||||||||
Transportation | (9,904) | (509) | (3,868) | — | (1,475) | (1,203) | — | — | (16,959) | |||||||||
Operating | (42,405) | (4,357) | (14,983) | (8,197) | (4,262) | (3,936) | (12,111) | (111) | (90,362) | |||||||||
General and administration | (5,985) | (1,285) | (2,792) | (454) | (1,485) | (272) | (1,063) | 1,367 | (11,969) | |||||||||
PRRT | — | — | — | — | — | — | (3,638) | — | (3,638) | |||||||||
Corporate income taxes | — | — | — | 353 | — | — | (235) | (108) | 10 | |||||||||
Interest expense | — | — | — | — | — | — | — | (17,400) | (17,400) | |||||||||
Realized gain on derivative instruments | — | — | — | — | — | -— | — | 4,180 | 4,180 | |||||||||
Realized foreign exchange loss | — | — | — | — | — | -— | — | (2,714) | (2,714) | |||||||||
Realized other income | — | — | — | — | — | — | — | 2,577 | 2,577 | |||||||||
Fund flows from operations | 78,821 | 8,340 | 18,431 | 3,957 | (1,158) | 5,061 | 13,490 | (12,166) | 114,776 |
Vermilion Energy Inc. ■ Page 48 ■ 2021 Third Quarter Report |
Nine Months Ended September 30, 2021 | ||||||||||||||||||
Canada | USA | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | ||||||||||
Total assets | 2,465,914 | 549,544 | 729,967 | 222,391 | 340,784 | 441,573 | 229,155 | 770,305 | 5,749,633 | |||||||||
Drilling and development | 104,191 | 28,948 | 24,566 | 14,535 | 8,608 | 1,156 | 26,030 | 12,354 | 220,388 | |||||||||
Exploration and evaluation | — | — | 112 | 70 | 816 | — | — | 7,603 | 8,601 | |||||||||
Crude oil and condensate sales | 444,677 | 56,597 | 199,454 | 1,729 | 20,461 | 23 | 102,682 | — | 825,623 | |||||||||
NGL sales | 57,120 | 10,744 | — | — | — | — | — | — | 67,864 | |||||||||
Natural gas sales | 129,378 | 10,620 | — | 128,624 | 45,851 | 105,050 | — | 836 | 420,359 | |||||||||
Sales of purchased commodities | — | — | — | — | — | — | — | 109,155 | 109,155 | |||||||||
Royalties | (76,587) | (20,692) | (27,492) | (454) | (1,938) | — | — | (174) | (127,337) | |||||||||
Revenue from external customers | 554,588 | 57,269 | 171,962 | 129,899 | 64,374 | 105,073 | 102,682 | 109,817 | 1,295,664 | |||||||||
Purchased commodities | — | — | — | — | — | — | — | (109,155) | (109,155) | |||||||||
Transportation | (29,630) | (1,023) | (19,923) | — | (4,283) | (3,269) | — | — | (58,128) | |||||||||
Operating | (160,683) | (12,262) | (37,905) | (23,820) | (19,826) | (10,782) | (34,830) | (225) | (300,333) | |||||||||
General and administration | (15,147) | (2,974) | (8,547) | (532) | (3,744) | 381 | (2,354) | (2,586) | (35,503) | |||||||||
PRRT | — | — | — | — | — | — | (10,144) | — | (10,144) | |||||||||
Corporate income taxes | — | — | 12,402 | (12,986) | — | — | 3,341 | (689) | 2,068 | |||||||||
Interest expense | — | — | — | — | — | — | — | (56,796) | (56,796) | |||||||||
Realized loss on derivative instruments | — | — | — | — | — | — | — | (137,786) | (137,786) | |||||||||
Realized foreign exchange loss | — | — | — | — | — | — | — | (4,218) | (4,218) | |||||||||
Realized other income | — | — | — | — | — | — | — | 12,020 | 12,020 | |||||||||
Fund flows from operations | 349,128 | 41,010 | 117,989 | 92,561 | 36,521 | 91,403 | 58,695 | (189,618) | 597,689 | |||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||
Canada | USA | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | ||||||||||
Total assets | 1,730,506 | 346,215 | 702,744 | 136,780 | 197,798 | 269,187 | 105,855 | 637,314 | 4,126,399 | |||||||||
Drilling and development | 166,199 | 65,281 | 29,396 | 6,919 | 9,784 | 1,612 | 20,128 | 259 | 299,578 | |||||||||
Exploration and evaluation | — | — | 102 | (231) | 2,908 | — | — | 4,951 | 7,730 | |||||||||
Crude oil and condensate sales | 306,121 | 43,303 | 129,094 | 1,047 | 12,423 | 12 | 111,304 | 8 | 603,312 | |||||||||
NGL sales | 23,009 | 4,467 | — | — | — | — | — | — | 27,476 | |||||||||
Natural gas sales | 79,342 | 3,587 | — | 41,561 | 11,106 | 35,316 | — | 1,647 | 172,559 | |||||||||
Sales of purchased commodities | — | ��— | — | — | — | — | — | 95,951 | 95,951 | |||||||||
Royalties | (39,721) | (13,016) | (22,653) | (294) | (2,180) | — | — | (582) | (78,446) | |||||||||
Revenue from external customers | 368,751 | 38,341 | 106,441 | 42,314 | 21,349 | 35,328 | 111,304 | 97,024 | 820,852 | |||||||||
Purchased commodities | — | — | — | — | — | — | — | (95,951) | (95,951) | |||||||||
Transportation | (31,507) | (978) | (10,340) | — | (4,302) | (3,527) | — | — | (50,654) | |||||||||
Operating | (163,871) | (13,671) | (40,898) | (24,638) | (15,089) | (12,000) | (40,143) | (365) | (310,675) | |||||||||
General and administration | (17,533) | (5,051) | (9,739) | (1,221) | (4,540) | (556) | (2,826) | (732) | (42,198) | |||||||||
PRRT | — | — | — | — | — | — | (16,113) | — | (16,113) | |||||||||
Corporate income taxes | — | — | — | 610 | — | — | (889) | (443) | (722) | |||||||||
Interest expense | — | — | — | — | — | — | — | (55,269) | (55,269) | |||||||||
Realized gain on derivative instruments | — | — | — | — | — | — | — | 108,303 | 108,303 | |||||||||
Realized foreign exchange gain | — | — | — | — | — | — | — | 9,781 | 9,781 | |||||||||
Realized other expense | — | — | — | — | — | — | — | (501) | (501) | |||||||||
Fund flows from operations | 155,840 | 18,641 | 45,464 | 17,065 | (2,582) | 19,245 | 51,333 | 61,847 | 366,853 |
Vermilion Energy Inc. ■ Page 49 ■ 2021 Third Quarter Report |
Reconciliation of fund flows from operations to net (loss) earnings:
Three Months Ended | Nine Months Ended | |||||||
Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | |||||
Fund flows from operations | 262,696 | 114,776 | 597,689 | 366,853 | ||||
Equity based compensation | (7,823) | (9,733) | (34,899) | (31,894) | ||||
Unrealized loss on derivative instruments | (279,393) | (39,637) | (353,359) | (34,092) | ||||
Unrealized foreign exchange (loss) gain | (27,877) | 15,885 | (72,085) | (1,507) | ||||
Accretion | (11,199) | (9,158) | (32,569) | (26,184) | ||||
Depletion and depreciation | (167,808) | (167,728) | (423,472) | (432,242) | ||||
Deferred tax recovery (expense) | 62,245 | 73,653 | (172,509) | 382,321 | ||||
Gain on business combinations | — | — | 17,198 | -— | ||||
Impairment reversal (expense) | 22,225 | (47,777) | 1,278,697 | (1,682,344) | ||||
Unrealized other expense | (196) | (207) | (583) | (631) | ||||
Net (loss) earnings | (147,130) | (69,926) | 804,108 | (1,459,720) |
3. Capital assets |
The following table reconciles the change in Vermilion's capital assets:
2021 | ||
Balance at January 1 | 3,107,104 | |
Acquisitions | 145,784 | |
Additions | 220,388 | |
Increase in right-of-use assets | 3,319 | |
Impairment reversal | 1,278,697 | |
Depletion and depreciation | (407,510) | |
Changes in asset retirement obligations | 399,083 | |
Foreign exchange | (68,672) | |
Balance at September 30 | 4,678,193 |
In the third quarter of 2021, indicators of impairment reversal were present in our Ireland CGU due to increased European forecast gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the Ireland CGU and the recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, the recoverable amount was determined to be greater than the carrying value and $16.7 million (net of $5.5 million deferred income tax expense) of impairment reversal was recorded.
In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGU due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
The following benchmark price forecasts were used to calculate the recoverable amounts:
2H2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 (2) | |||||||||||
Brent Crude ($ US/bbl) (1) | 73.25 | 69.55 | 66.42 | 67.75 | 69.11 | 70.49 | 71.90 | 73.34 | 74.80 | 76.30 | ||||||||||
WTI Crude ($ US/bbl) (1) | 71.00 | 66.30 | 62.42 | 63.67 | 64.95 | 66.25 | 67.57 | 68.92 | 70.30 | 71.71 | ||||||||||
NBP (#eu#/mmbtu) (1) | 9.17 | 7.19 | 5.53 | 5.65 | 5.75 | 5.87 | 5.99 | 6.11 | 6.23 | 6.35 | ||||||||||
Exchange rate (CAD/USD) | 0.81 | 0.81 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 |
(1) The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts.
(2) In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates.
Vermilion Energy Inc. ■ Page 50 ■ 2021 Third Quarter Report |
The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken:
Operating Segment | CGU | Impairment Reversal (1) | Recoverable Amount | 1% increase in discount rate | 5% decrease in pricing |
Canada | Alberta | 88,708 | 988,447 | — | 29,716 |
Canada | Saskatchewan | 270,897 | 1,500,139 | 80,724 | 156,875 |
Ireland | Ireland | 133,005 | 339,315 | 9,136 | 23,975 |
Germany | Germany - Gas | 43,735 | 168,290 | — | — |
United States | United States | 57,261 | 429,322 | 26,903 | 44,317 |
Total | 593,606 | 3,425,513 | 116,763 | 254,883 |
(1) Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken.
In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast oil prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
The following benchmark price forecasts were used to calculate the recoverable amounts:
2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 (2) | |||||||||||
Brent Crude ($ US/bbl) (1) | 64.50 | 62.08 | 61.69 | 62.84 | 64.02 | 65.22 | 66.45 | 67.70 | 68.97 | 70.35 | ||||||||||
WTI Crude ($ US/bbl) (1) | 62.00 | 58.58 | 57.69 | 58.84 | 60.02 | 61.22 | 62.45 | 63.70 | 64.97 | 66.27 | ||||||||||
Exchange rate (CAD/USD) | 0.80 | 0.79 | 0.78 | 0.78 | 0.78 | 0.78 | 0.78 | 0.78 | 0.78 | 0.78 |
(1) The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts.
(2) In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates.
The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken:
Operating Segment | CGU | Impairment Reversal (1) | Recoverable Amount | 1% increase in discount rate | 5% decrease in pricing |
Australia | Australia | 82,016 | 189,749 | 6,921 | 19,756 |
Canada | Alberta | 232,724 | 859,706 | 46,223 | 81,212 |
Canada | Saskatchewan | 290,241 | 1,206,343 | 69,104 | 143,281 |
United States | United States | 57,885 | 364,242 | 24,180 | 41,345 |
Total | 662,866 | 2,620,040 | 146,428 | 285,594 |
(1) Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken.
Assets in Wyoming
In July 2021, Vermilion acquired mineral leasehold land and oil and gas producing assets from a private oil company for total cash consideration of $92.0 million. The assets are located in the Powder River Basin and are adjacent to Vermilion's Hilight assets within the USBU cash generating unit ("CGU"). The acquired assets complement Vermilion's existing Powder River operations and were funded through Vermilion’s revolving credit facility. Vermilion applied the optional concentration test under IFRS 3 Business Combinations which resulted in the purchase being accounted for as an asset acquisition.
Minor Acquisition
In the second quarter of 2021, Vermilion completed an acquisition within its Germany Gas CGU for total consideration of $11.6 million, in which $49.2 million in capital assets, $12.4 million in asset retirement obligations, and $7.9 million in deferred tax liabilities were recognized. The acquisition resulted in a gain on acquisition of $17.2 million which was due to increases in commodity prices from the effective date to close and was accounted for as a business combination under IFRS 3.
Vermilion Energy Inc. ■ Page 51 ■ 2021 Third Quarter Report |
4. Asset retirement obligations |
The following table reconciles the change in Vermilion’s asset retirement obligations:
2021 | ||
Balance at January 1 | 467,737 | |
Additional obligations recognized | 15,144 | |
Changes in estimated abandonment timing and costs | 726 | |
Obligations settled | (15,486) | |
Accretion | 32,569 | |
Changes in discount rates | 396,577 | |
Foreign exchange | (20,318) | |
Balance at September 30 | 876,949 |
Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 4.3% as at September 30, 2021 (December 31, 2020 - 9.5%) added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined as the yield to maturity on its senior unsecured notes as at the reporting period.
The country specific risk-free rates used as inputs to discount the obligations were as follows:
Sep 30, 2021 | Dec 31, 2020 | |||
Canada | 2.0 | % | 1.2 | % |
United States | 2.0 | % | 1.6 | % |
France | 0.8 | % | 0.3 | % |
Netherlands | (0.4) | % | (0.6) | % |
Germany | 0.2 | % | (0.2) | % |
Ireland | 0.5 | % | (0.1) | % |
Australia | 1.7 | % | 1.3 | % |
5. Capital disclosures |
Vermilion defines capital as net debt (long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities)) and shareholders’ capital. In managing capital, Vermilion reviews whether fund flows from operations is sufficient to fund capital expenditures, dividends, and asset retirement obligations.
The following table calculates Vermilion’s ratio of net debt to four quarter trailing fund flows from operations:
Sep 30, 2021 | Dec 31, 2020 (revised) | |||
Long-term debt | 1,760,342 | 1,933,848 | ||
Adjusted net working capital deficiency (1) | 41,168 | 35,258 | ||
Unrealized foreign exchange on swapped USD borrowings | (23,458) | 40,219 | ||
Net debt | 1,778,052 | 2,009,325 | ||
Ratio of net debt to four quarter trailing fund flows from operations | 2.43 | 4.00 |
(1) Adjusted working capital is defined as current assets (excluding current derivatives), less current liabilities (excluding current derivatives and current lease liabilities)
In Q3 2021, the Company adjusted the calculation for net debt in order to provide more meaningful and comparable information to users. The revised definition for net debt excludes net current derivatives, current lease liabilities, and unrealized foreign exchange effects on USD borrowings under the revolving credit facility.
Vermilion Energy Inc. ■ Page 52 ■ 2021 Third Quarter Report |
6. Long-term debt |
The following table summarizes Vermilion’s outstanding long-term debt:
As at | ||||
Sep 30, 2021 | Dec 31, 2020 | |||
Revolving credit facility | 1,383,946 | 1,555,215 | ||
Senior unsecured notes | 376,396 | 378,633 | ||
Long-term debt | 1,760,342 | 1,933,848 |
The fair value of the revolving credit facility is equal to its carrying value due to the use of short-term borrowing instruments at market rates of interest. The fair value of the senior unsecured notes as at September 30, 2021 was $383.8 million (December 31, 2020 - $329.1 million).
The following table reconciles the change in Vermilion’s long-term debt:
2021 | ||
Balance at January 1 | 1,933,848 | |
(Repayments) borrowings on the revolving credit facility | (238,137) | |
Amortization of transaction costs | 583 | |
Foreign exchange | 64,048 | |
Balance at September 30 | 1,760,342 |
Revolving credit facility
In Q1 2020, we negotiated an extension to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2024.
As at September 30, 2021, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with the following terms:
As at | ||||
Sep 30, 2021 | Dec 31, 2020 | |||
Total facility amount | 2,100,000 | 2,100,000 | ||
Amount drawn | (1,383,946) | (1,555,215) | ||
Letters of credit outstanding | (16,022) | (23,210) | ||
Unutilized capacity | 700,032 | 521,575 |
The facility can be extended from time to time 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 due at the maturity date. The facility is secured by various fixed and floating charges against the subsidiaries of Vermilion.
The facility bears interest at a rate applicable to demand loans plus applicable margins.
As at September 30, 2021, the revolving credit facility was subject to the following financial covenants:
As at | |||||
Financial covenant | Limit | Sep 30, 2021 | Dec 31, 2020 | ||
Consolidated total debt to consolidated EBITDA | Less than 4.0 | 2.20 | 3.48 | ||
Consolidated total senior debt to consolidated EBITDA | Less than 3.5 | 1.72 | 2.82 | ||
Consolidated EBITDA to consolidated interest expense | Greater than 2.5 | 11.00 | 8.12 |
The financial covenants include financial measures defined within the revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by the revolving credit facility agreement as follows:
• | Consolidated total debt: Includes all amounts classified as “Long-term debt” and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on the balance sheet. |
• | Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. |
• | Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. |
• | Consolidated total interest expense: Includes all amounts classified as "Interest expense", but excludes interest on operating leases as defined under IAS 17. |
Vermilion Energy Inc. ■ Page 53 ■ 2021 Third Quarter Report |
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby if our security adjusted liability management ratings fall below specified limits in a province, a portion of the asset retirement obligations are included in the definitions of consolidated total debt and consolidated total senior debt. An event of default occurs if our security adjusted liability management ratings breach additional lower limits for a period greater than 90 days. As of September 30, 2021, Vermilion's liability management ratings were higher than the specified levels, and as such, no amounts relating to asset retirement obligations were included in the calculation of consolidated total debt and consolidated total senior debt.
As at September 30, 2021 and December 31, 2020, Vermilion was in compliance with the above covenants.
Senior unsecured notes
On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, to be paid semi-annually on March 15 and September 15. The notes mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally with existing and future senior unsecured indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
Year | Redemption price | |
2021 | 102.813 | % |
2022 | 101.406 | % |
2023 and thereafter | 100.000 | % |
7. Shareholders' capital |
The following table reconciles the change in Vermilion’s shareholders’ capital:
2021 | ||||
Shareholders’ Capital | Shares ('000s) | Amount | ||
Balance at January 1 | 158,724 | 4,181,160 | ||
Vesting of equity based awards | 2,132 | 45,051 | ||
Shares issued for equity based compensation | 911 | 8,364 | ||
Share-settled dividends on vested equity based awards | 218 | 1,926 | ||
Balance at September 30 | 161,985 | 4,236,501 |
Vermilion Energy Inc. ■ Page 54 ■ 2021 Third Quarter Report |
8. Financial instruments |
The following table summarizes the increase (positive values) or decrease (negative values) to net earnings before tax due to a change in the value of Vermilion’s financial instruments as a result of a change in the relevant market risk variable. This analysis does not attempt to reflect any interdependencies between the relevant risk variables.
Sep 30, 2021 | ||
Currency risk - Euro to Canadian dollar | ||
$0.01 increase in strength of the Canadian dollar against the Euro | (705) | |
$0.01 decrease in strength of the Canadian dollar against the Euro | 705 | |
Currency risk - US dollar to Canadian dollar | ||
$0.01 increase in strength of the Canadian dollar against the US $ | 2,805 | |
$0.01 decrease in strength of the Canadian dollar against the US $ | (2,805) | |
Commodity price risk - Crude oil | ||
US $5.00/bbl increase in crude oil price used to determine the fair value of derivatives | (8,013) | |
US $5.00/bbl decrease in crude oil price used to determine the fair value of derivatives | 2,941 | |
Commodity price risk - European natural gas | ||
#eu#0.5/GJ increase in European natural gas price used to determine the fair value of derivatives | (15,038) | |
#eu#0.5/GJ decrease in European natural gas price used to determine the fair value of derivatives | 14,926 | |
Share price risk - Equity swaps | ||
$1.00 increase from initial share price of the equity swap | 3,750 | |
$1.00 decrease from initial share price of the equity swap | (3,750) |
Vermilion Energy Inc. ■ Page 55 ■ 2021 Third Quarter Report |
DIRECTORS
Lorenzo Donadeo 1 Calgary, Alberta
Larry J. Macdonald 2, 4, 8, 10 Calgary, Alberta
James J. Kleckner Jr. 8, 10 Edwards, Colorado
Carin Knickel 5, 8, 12 Golden, Colorado
Stephen P. Larke 4, 6, 12 Calgary, Alberta
Timothy R. Marchant 7, 10, 11 Calgary, Alberta
Robert Michaleski 3, 6 Calgary, Alberta
William Roby 8, 9, 12 Katy, Texas
Manjit Sharma 4,8 Toronto, Ontario
Judy Steele 6,12 Halifax, Nova Scotia
1 Executive Chairman 2 Lead Director (Independent) 3 Audit Committee Chair (Independent) 4 Audit Committee Member 5 Governance and Human Resources Committee Chair (Independent) 6 Governance and Human Resources Committee Member 7 Health, Safety and Environment Committee Chair (Independent) 8 Health, Safety and Environment Committee Member 9 Independent Reserves Committee Chair (Independent) 10 Independent Reserves Committee Member 11 Sustainability Committee Chair (Independent) 12 Sustainability Committee Member
| OFFICERS / CORPORATE SECRETARY
Lorenzo Donadeo * Executive Chairman
Curtis Hicks * President (to December 31, 2021)
Dion Hatcher * Vice President North America / President (effective January 1, 2022)
Lars Glemser * Vice President & Chief Financial Officer
Terry Hergott Vice President Marketing
Yvonne Jeffery Vice President Sustainability
Darcy Kerwin * Vice President International & HSE
Bryce Kremnica * Vice President North America
Geoff MacDonald Vice President Geosciences
Kyle Preston Vice President Investor Relations
Averyl Schraven Vice President People and Culture
Jenson Tan * Vice President Business Development
Gerard Schut * Vice President European Operations
Robert (Bob) J. Engbloom Corporate Secretary
* Executive Committee
| AUDITORS
Deloitte LLP Calgary, Alberta
BANKERS
The Toronto-Dominion Bank
Bank of Montreal
Canadian Imperial Bank of Commerce
Export Development Canada
National Bank of Canada
Royal Bank of Canada
The Bank of Nova Scotia
Wells Fargo Bank N.A., Canadian Branch
Bank of America N.A., Canada Branch
Citibank N.A., Canadian Branch - Citibank Canada
JPMorgan Chase Bank, N.A., Toronto Branch
La Caisse Centrale Desjardins du Québec
Alberta Treasury Branches
Canadian Western Bank
Goldman Sachs Lending Partners LLC
EVALUATION ENGINEERS
GLJ Petroleum Consultants Ltd. Calgary, Alberta
LEGAL COUNSEL
Norton Rose Fulbright Canada LLP Calgary, Alberta
TRANSFER AGENT
Odyssey Trust Company
STOCK EXCHANGE LISTINGS
The Toronto Stock Exchange (“VET”) The New York Stock Exchange (“VET”)
INVESTOR RELATIONS Kyle Preston Vice President Investor Relations 403-476-8431 TEL 403-476-8100 FAX 1-866-895-8101 IR TOLL FREE investor_relations@vermilionenergy.com
|
Vermilion Energy Inc. ■ Page 56 ■ 2021 Third Quarter Report |