Highlights
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Vermilion has entered into an agreement to acquire
Equinor Energy Ireland Limited which owns a 36.5% interest in Corrib ("Corrib Acquisition") for total consideration ofUS$434 million ($556 million ), before closing adjustments and contingent payment. The transaction has an effective date ofJanuary 1, 2022 and is expected to close during the second half of 2022 after all requisite approvals have been received. -
The cash payment on closing will be reduced by the interim free cash flow ("FCF")(1) generated from the effective date to closing. We estimate a cash payment on closing in the range of
$200 to$300 million , depending on the actual closing date, which we expect to fund within 2022 FCF. As part of the transaction, we have entered into an agreement with Equinor to hedge approximately 70% of the production for 2022 and 2023 which provides high certainty of an approximate two-year payback period. -
The purchase price represents a funds flow from operations ("FFO") multiple of approximately 1.5 times. We estimate 2022 full-year pro forma(2) FFO per share accretion of approximately 33% and FCF per share accretion of approximately 53%, based on forward commodity prices(3). In addition, we estimate the transaction to be approximately 11% deleveraging in 2022 with incremental deleveraging and accretion expected in 2023 and beyond.
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The Corrib Acquisition will add approximately 23 mmboe of 2P reserves and is expected to produce approximately 7,700 boe/d in 2022. Based on forward commodity prices, the Corrib Acquisition is forecast to generate approximately
$365 million of FFO and$361 million of FCF in 2022 which equates to an FFO and FCF netback of approximately$130 /boe. -
Vermilion's operated interest in Corrib will increase to 56.5% upon closing, significantly increasing our exposure to premium priced European natural gas. On a 2022 full-year pro forma basis, European natural gas will represent approximately 22% of our production and approximately 42% of FFO. The acquisition also rebalances our international weighting to approximately 39% of production and 60% of FFO based on 2022 full-year pro forma estimates, further enhancing our geographical and commodity diversification which is a unique differentiator in our business model.
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Corrib's natural gas production features world-class ESG, with best-in-class Scope 1 and 2 emissions intensity of 4.2 kgCO2e/boe and a robust plan for long-term biodiversity enhancement.
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Vermilion's Board of Directors has approved an E&D capital budget of
$425 million for 2022 which is expected to deliver annual average production of 83,000 to 85,000 boe/d, excluding any impact from the Corrib Acquisition. We will update our 2022 guidance once we have confirmation on the timing of the Corrib Acquisition closing date. -
Based on forward commodity prices, we forecast 2022 full-year pro forma FFO in excess of
$1.45 billion and FCF in excess of$1.0 billion (FFO and FCF in excess of$1.1 billion and$650 million , respectively excluding the Corrib Acquisition). The majority of FCF after dividends will be allocated to debt reduction and to fund the Corrib Acquisition, resulting in year-end net debt of less than$1.3 billion and a net debt to trailing full-year pro forma FFO ratio of less than 0.9 times. -
We plan to reinstate a
$0.06 per share quarterly dividend commencing in Q1 2022. Our return of capital framework will be a staged approach that will increase over time as further debt targets are achieved while retaining the flexibility to adjust when necessary. The Corrib Acquisition will significantly enhance the company's FCF profile and ability to return additional capital to shareholders.
Corrib Acquisition
Vermilion has entered into an agreement with Equinor ASA to acquire its wholly owned subsidiary
The Corrib Acquisition will add approximately 23 mmboe of 2P reserves and is expected to produce approximately 7,700 boe/d in 2022. Based on forward commodity prices, the Corrib Acquisition is forecast to generate approximately
As part of the transaction, we have entered into an agreement with Equinor to hedge approximately 70% of the production for 2022 and 2023 (NBP forward strip is currently
The Corrib Acquisition aligns with our corporate acquisition and ESG strategy as it further consolidates ownership in an operated, high margin, low decline, low emission asset that generates significant FCF to support a sustainable and growing dividend. Corrib's natural gas production features a world-class ESG approach, with best-in-class Scope 1 and 2 emissions intensity of 4.2 kgCO2e/boe and a robust plan for long-term biodiversity enhancement. Our ownership in Corrib will increase to 56.5% upon closing of this acquisition, significantly increasing our exposure to premium priced European natural gas. On a 2022 full-year pro forma basis, we expect European natural gas to represent approximately 22% of our production and approximately 42% of FFO. The acquisition also rebalances our international weighting to approximately 39% of production and 60% of FFO on a 2022 full-year pro forma basis, further enhancing our geographical and commodity diversification which is a unique differentiator in our business model.
2022 Budget and Production Guidance
Vermilion's Board of Directors has approved an E&D capital budget of
In
We plan to invest approximately
Based on forward commodity prices, we forecast 2022 full-year pro forma FFO in excess of
Country |
2022 Budget* |
2021 Budget* |
2022 vs. 2021 |
2022 |
2021 |
215 | 221 | (3%) | 46.3 | 58.2 | |
International | 210 | 154 | 36% | 11.1 | 3.5 |
Total E&D Capital Expenditures | 425 | 375 | 13% | 57.4 | 61.7 |
Category |
2022 Budget* |
2021 Budget* |
2022 vs. 2021 |
Drilling, completion, new well equipment & tie-in, workovers/recompletions | 275 | 215 | 28% |
Production equipment and facilities | 115 | 127 | -9% |
Seismic, land and other | 35 | 33 | 5% |
Total E&D Capital Expenditures | 425 | 375 | 13% |
* |
2022 reflects foreign exchange assumptions of CAD/ |
Dividend Reinstatement and Return of Capital Strategy
We plan to reinstate a
As we approach and achieve further debt and leverage targets, it is our intention to augment our return of capital to shareholders through one or a combination of base dividend increases, special dividends and/or share buybacks. Our next leverage target is 1.5 times net debt to trailing FFO at mid-cycle pricing which implies an absolute net debt level of approximately
Advisors
Scotiabank,
Conference Call and Webcast Details
Vermilion will discuss its Corrib Acquisition and 2022 Budget and Guidance in a conference call and webcast presentation on
You may also access the webcast at https://produceredition.webcasts.com/starthere.jsp?ei=1516646&tp_key=5a95b38863. The webcast link, along with conference call slides, will be available on Vermilion's website at https://www.vermilionenergy.com/ir/eventspresentations.cfm under Upcoming Events prior to the conference call.
(1) | This document references free cash flow which is not specified, defined, or determined under International Financial Reporting Standards ("IFRS") and is therefore considered non-GAAP financial measures and may not be comparable to similar measures presented by other issuers. Free cash flow represents fund flows from operations in excess of capital expenditures and is used 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. |
(2) | The full-year pro forma figures reflect annual estimates of the Corrib Acquisition based on the effective date of |
(3) | 2022 forward strip prices as at |
About Vermilion
Vermilion is an international energy producer that seeks to create value through the acquisition, exploration, development and optimization of producing assets in
Vermilion's priorities are health and safety, the environment, and profitability, in that order. Nothing is more important to us than the safety of the public and those who work with us, and the protection of our natural surroundings. In addition, Vermilion emphasizes strategic community investment in each of our operating areas. We have been recognized as a strong performer amongst Canadian publicly listed companies in governance practices, a Climate Leadership level (A-) performer by the CDP, and a Best Workplace in the
Employees and directors hold approximately 5% of our outstanding shares and are committed to delivering long-term value for all stakeholders. Vermilion trades on the
Disclaimer
Certain statements included or incorporated by reference in this document may constitute forward-looking statements or financial outlooks under applicable securities legislation. Such forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook. Forward looking statements or information in this document may include, but are not limited to: capital expenditures and Vermilion's ability to fund such expenditures; Vermilion's additional debt capacity providing it with additional working capital; the flexibility of Vermilion's capital program and operations; business strategies and objectives; operational and financial performance; estimated volumes of reserves and resources; petroleum and natural gas sales; future production levels and the timing thereof, including Vermilion's 2021 and 2022 guidance, and rates of average annual production growth; the effect of changes in crude oil and natural gas prices, changes in exchange rates and significant declines in production or sales volumes due to unforeseen circumstances; the effect of possible changes in critical accounting estimates; statements regarding the growth and size of Vermilion's future project inventory, and the wells expected to be drilled in 2021 and 2022; exploration and development plans and the timing thereof; Vermilion's ability to reduce its debt, including its ability to redeem senior unsecured notes prior to maturity; statements regarding Vermilion's hedging program, its plans to add to its hedging positions, and the anticipated impact of Vermilion's hedging program on project economics and free cash flows; the potential financial impact of climate-related risks; 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 Vermilion's expectations regarding future taxes and taxability; 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
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.
All crude oil and natural gas reserve and resource information contained in this document has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook. Reserves estimates have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability of funding required for such development. The actual crude oil and natural gas reserves and future production will be greater than or less than the estimates provided in this document.
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.
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