Core Thesis - Vermilion Energy Inc. (VET) is viewed positively due to recent insider buying, macroeconomic factors, and potential for strategic acquisitions, indicating management's confidence in the company's prospects [2][3][5] Insider Activity - A notable cluster of insider buying has been observed, including CAD 250,000 from VP of Business Development Lara Conrad, suggesting strong management conviction in Vermilion's future [2] - Independent director Stephen Larke's CAD 200,000 purchase and CEO Dion Hatcher's CAD 16,000 buy further support the notion that management believes the stock is undervalued [3] Strategic Acquisitions - Lara Conrad's previous experience with a significant acquisition at ARC Resources indicates that Vermilion may be preparing for strategic acquisitions, enhancing its growth potential [3] Macro Factors - The current Atlantic hurricane season has been unusually quiet, which historically correlates with colder winters in Europe, potentially increasing heating demand by 20-50% and benefiting Vermilion's natural gas operations in Europe [4] - The accelerating data center buildout in Canada is expected to provide structural support to domestic natural gas prices, positioning Vermilion to benefit from price appreciation in both European (TTF) and Canadian (AECO) markets [5] Financial Position - Despite a 3.70% depreciation in stock value since the last bullish thesis coverage, the company's strategic direction remains intact, with ongoing share buybacks and undervalued assets presenting a compelling investment opportunity [6]

Core Viewpoint - Vermilion Energy Inc. is set to release its third quarter operating and financial results for 2025 on November 5, 2025, after North American markets close, with a conference call scheduled for November 6, 2025, to discuss these results [1][2]. Group 1: Financial Results Announcement - The unaudited interim financial statements and management discussion for the three and nine months ended September 30, 2025, will be available on SEDAR, EDGAR, and Vermilion's website [1]. - A conference call and webcast presentation will take place on November 6, 2025, at 9:00 AM MT (11:00 AM ET) to discuss the results [2]. Group 2: Conference Call Details - Participants can join the conference call by calling designated numbers for Canada, the US, and international attendees, with a recording available for replay from November 6 to November 13, 2025 [2][3]. - An automated call back option is available for participants who register their phone numbers, and a webcast will also be accessible [3]. Group 3: Company Overview - Vermilion Energy Inc. is a global gas producer focused on acquiring, exploring, and developing liquids-rich natural gas in Canada and conventional natural gas in Europe, while optimizing low-decline oil assets [4]. - The company prioritizes health and safety, environmental protection, and profitability, emphasizing strategic community investment in its operating areas [5].

Industry Overview - The Zacks Oil and Gas - International E&P industry consists of companies focused on the exploration and production of oil and natural gas outside the United States, with cash flow heavily influenced by commodity prices [2] - E&P companies are vulnerable to volatile energy market prices, which affect their returns and production growth rates [2] Key Challenges - The industry faces oversupply risks due to OPEC+ easing production cuts and the International Energy Agency projecting stronger supply growth than demand, leading to potential price pressures [3] - Weakening U.S. demand, highlighted by rising crude inventories, raises concerns about economic growth and could lead to reduced pricing leverage for E&P firms [4] - Persistent cost inflation, including labor shortages and higher service expenses, is squeezing profitability and could narrow E&P margins further [6] Growth Opportunities - Natural gas and LNG are emerging as structural growth drivers, with global demand expanding, particularly in Asian markets and Europe, providing longer-term visibility for producers [5] - Companies with diversified portfolios and strong cash generation capabilities are positioned to benefit from these trends [1] Performance Metrics - The Zacks Oil and Gas - International E&P industry currently holds a Zacks Industry Rank of 178, placing it in the bottom 27% of 245 Zacks industries, indicating challenging near-term prospects [7][8] - The industry's earnings estimates for 2025 have decreased by 111.1% over the past year, reflecting a negative outlook [9] - Over the past year, the industry has underperformed, losing more than 40%, compared to a 3.9% increase in the broader sector and a 17.8% gain in the S&P 500 [11] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 5.84X, significantly lower than the S&P 500's 18.34X but above the sector's 5.13X [14] Notable Companies - **Vermilion Energy**: Focuses on free cash flow generation with a diversified portfolio across Canada, Europe, and Australia. The company has seen a 210.3% increase in earnings estimates for 2025, indicating strong growth potential [17][18] - **VAALCO Energy**: An independent oil and gas company with operations in Africa and Canada, focusing on oil production. The company has a market cap of approximately $446 million and has experienced a 27% decline in shares over the past year [20][21] - **Capricorn Energy**: A UK-based producer with a focus on Egypt, known for its cash flow-driven strategy and significant shareholder returns. The company has a market cap of just over $200 million and has seen a 3% increase in shares over the past year [23][24]

Financial Data and Key Metrics Changes - Vermillion Energy reported a production average of 136,000 BOEs per day in Q2, a 32% increase from the previous quarter, primarily due to the Westbrook acquisition [4] - Fund flows from operations reached $260 million, with free cash flow of $144 million after capital expenditures [5] - The company expects to end 2025 with approximately $1.3 billion in net debt, a decrease of $750 million from Q1 [16] Business Line Data and Key Metrics Changes - The production base is now approximately 120,000 BOEs per day, with 70% weighted to natural gas, and over 90% of production coming from global gas assets [5] - Montney production averaged about 15,000 BOEs per day in Q2, with significant cost reductions achieved in drilling operations [7] - The company plans to invest approximately $100 million in additional infrastructure and drilling 40 wells over the next few years to reach a targeted production rate of 28,000 BOEs per day by 2028 [8][19] Market Data and Key Metrics Changes - European gas prices are currently over $15 per MMBtu, significantly higher than AECO prices, which averaged $1.69 [12][18] - The realized gas price for the company in Q2 was $4.88 per Mcf, reflecting a competitive advantage due to the unique gas portfolio [18][51] Company Strategy and Development Direction - Vermillion is transitioning towards becoming a global gas producer, with over 80% of future capital investments directed towards global gas assets [5] - The company is focused on enhancing operational scale and long-duration assets to position itself for sustainable growth [5][14] - Vermillion aims to streamline its portfolio further by exiting non-core assets in Europe and focusing on high-return development opportunities [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a new cost benchmark for Montney wells, which will improve future development costs and returns [8] - The company is well-positioned for long-term shareholder value with a more focused asset base and improved cost structure [20] - Management highlighted the importance of operational excellence during a busy period of integration and divestment [14] Other Important Information - Vermillion achieved its Scope one emission reduction target one year ahead of schedule, with a 16% reduction in emissions intensity compared to 2019 levels [13] - The company has identified synergies worth a combined $300 million on an NPV-ten basis from the Westbrook acquisition [15] Q&A Session Summary Question: What is next in terms of reshaping the portfolio? - Management indicated ongoing efforts to streamline the portfolio, including exiting Hungary and not pursuing opportunities in Slovakia, while considering the future of assets in Croatia [24][25] Question: What is the payout ratio and bias towards dividends or buybacks? - The company plans to return 40% of excess free cash flow to shareholders, prioritizing share buybacks over dividends [28] Question: Can you provide a breakdown of the Westbrook synergies? - Management detailed that the $200 million in synergies includes operational efficiencies and restructuring of the Canadian organization, with an estimated $30 million in annual savings [33][35] Question: What is the update on acquisition potential in Europe? - Management sees potential for acquisitions in Europe, particularly in the Netherlands, and feels comfortable financing these opportunities due to ongoing deleveraging [37] Question: What happened with the deferred CapEx? - The company deferred capital expenditures on non-core assets to prioritize debt reduction, with a current forecast of $630 to $660 million for the year [46]

Financial Highlights - Vermilion Energy's trading price was $10.74 (TSX) and US$7.83 (NYSE) as of August 7, 2025[3] - The company's market capitalization stood at $1.7 billion and enterprise value at $3.0 billion[3] - Year-end 2025 net debt is projected to be $1.3 billion, with a net debt-to-FFO ratio of 1.3x[3,9] Production and Capital Expenditure - H2/25E production is estimated to be 90% global gas assets and 10% legacy oil assets[3,86] - The company's 2025 production guidance is between 117,000 and 122,000 boe/d[3] - E&D capital expenditures for 2025 are guided at $630-660 million[3] Asset Development and Synergies - Post-acquisition synergies from Westbrick are estimated to be over $200 million NPV10[10,14] - DCET costs in the Deep Basin have been reduced to $8.5 million per well[10,14] - The Wisselshorst discovery in Germany is estimated to contain 380 Bcf GIIP (240 Bcf net)[14,55] Return of Capital - The company targets a return of capital payout of 40% of excess FCF via base dividend and share buybacks, with plans to increase to 50% when net debt reaches an appropriate level[62] - Vermilion has repurchased 19.1 million shares since July 2022, reducing the share count by 6.9% to 153.8 million[62]

Financial Performance - Vermilion generated $260 million of fund flows from operations (FFO) in Q2 2025, with E&D capital expenditures of $115 million, resulting in increased free cash flow of $144 million[37]. - Q2 2025 sales reached $443.834 million, a 25.8% increase from $352.637 million in Q2 2024[51]. - Fund flows from operations for Q2 2025 were $259.678 million, compared to $236.703 million in Q2 2024, reflecting a 9.7% increase[56]. - Free cash flow for Q2 2025 was $144.189 million, up from $126.093 million in Q2 2024, indicating a 14.3% growth[56]. - The payout ratio as a percentage of fund flows from operations was 55% in Q2 2025, down from 60% in Q2 2024[58]. - Net earnings from continuing operations for Q2 2025 were $74.385 million, a significant recovery from a loss of $108.807 million in Q2 2024[51]. - The company reported a net loss of $233.458 million for Q2 2025, compared to a loss of $82.425 million in Q2 2024[52]. - Adjusted working capital improved to $540.502 million as of June 30, 2025, from a deficit of $3.426 million at the end of 2024[60]. - Return on capital employed (ROCE) for the twelve months ended June 30, 2025, was -2%, an improvement from -13% in the previous year[59]. - The company incurred an impairment expense of $372.386 million in Q2 2025, impacting overall financial performance[52]. Production and Operations - Production for Q2 2025 averaged 136,002 boe/d, a 32% increase over the prior quarter, with North American operations averaging 106,379 boe/d, up 44% from the previous quarter[38]. - The divestment of Saskatchewan and United States assets was completed in July 2025, allowing Vermilion to focus on a production base of approximately 120,000 boe/d, with 70% being natural gas[33]. - The company expects Q3 2025 production to average between 117,000 to 120,000 boe/d, factoring in the recent asset divestments and planned turnaround activity[43]. - In Germany, the Osterheide deep gas well produced approximately 1,100 boe/d in Q2 2025, exceeding original expectations[40]. - Total production volume reached 106,379 boe/d in Q2 2025, a 93% increase from 54,987 boe/d in Q2 2024[118]. - Total production for Q2 2025 was 90,926 boe/d, a significant increase from 59,104 boe/d in Q1 2025[215]. - The company completed five net Montney wells and brought eleven net wells on production in Q2 2025, contributing to increased production[121]. - Consolidated average production increased to 136,002 boe/d in Q2 2025, up from 84,974 boe/d in Q2 2024, attributed to the Westbrick acquisition and increased production in Germany and Central and Eastern Europe[103]. Capital Expenditures and Investments - Capital expenditures in Q2 2025 totaled $115.489 million, slightly higher than $110.610 million in Q2 2024[57]. - The average drilling and completion cost for the most recent Montney wells was $8.5 million, which is expected to reduce future development costs by an incremental $50 million on an NPV10 basis[39]. - Vermilion's capital program will continue to focus on global gas assets, particularly in the Montney, Deep Basin, and Germany gas programs[43]. - Acquisitions in Q2 2025 totaled $1.59 million, a significant decrease of 71% from $5.45 million in Q2 2024[83]. - The company plans to continue focusing on drilling and development, with $111.238 million allocated for these activities in Q2 2025[214]. Debt and Financial Obligations - Net debt as of June 30, 2025, was $1.41 billion, a 56% increase from $906.7 million at the end of 2024[65][83]. - The ratio of net debt to four-quarter trailing fund flows from operations increased to 1.4 in Q2 2025, up from 0.8 in Q2 2024[66]. - Long-term debt increased to $2.0 billion as of June 30, 2025, due to the Westbrick acquisition, including the issuance of $563.0 million in senior unsecured notes and a $450.0 million term loan[109]. - The company repaid $200 million of the term loan during the second quarter of 2025[178]. - The revolving credit facility had an amount drawn of $632.3 million as of June 30, 2025, with an unutilized capacity of $685.5 million[173]. Market and Pricing - Realized prices for crude oil and condensate decreased by 22% to $85.07 per barrel in Q2 2025 compared to $108.93 per barrel in Q2 2024[110]. - Natural gas prices in North America saw significant increases, with Henry Hub prices rising 84% to $4.76 per mcf in Q2 2025 compared to Q2 2024[110]. - Crude oil prices in Q2 2025 decreased by 20% for Canadian dollar WTI and 19% for Dated Brent compared to Q2 2024 due to macroeconomic uncertainties[115]. - The average sales price for crude oil and condensate internationally was $90.82 per barrel in Q2 2025, a decrease from $108.97 in Q1 2025[221]. - The average sales price for natural gas in North America was $2.25 per mcf in Q2 2025, down from $2.77 in Q1 2025[221]. Environmental and Sustainability Efforts - The company achieved a 16% reduction in Scope 1 emissions intensity compared to 2019, progressing towards its long-term sustainability goals[44]. - Vermilion identified over $200 million (NPV10) of synergies post-acquisition of Westbrick Energy Ltd., enhancing profitability through operational integration[34]. Miscellaneous - The company has not entered into any off-balance sheet arrangements that would materially impact its financial position[197]. - Vermilion's internal control over financial reporting remained effective with no material changes during the reporting period[198]. - The company is assessing the impact of newly issued IFRS Sustainability Standards on its financial reporting, with mandatory disclosure anticipated in 2027[202].

Group 1 - Vermilion Energy is a Canadian mid-cap oil and natural gas producer with recent changes in exposure due to the acquisition of Westbrick Energy in late 2024 [1] - The company operates in the natural resource sector, focusing on turnarounds with a typical holding period of 2-3 years [2] - The portfolio of the company has achieved a compounded annual growth rate of 29% over the last 6 years, indicating strong performance [2]

Financial Overview - Vermilion Energy's trading price was $10.74 (TSX) and US$7.83 (NYSE) as of August 7, 2025[3] - The company's market capitalization stood at $1.7 billion, with an enterprise value of $3.0 billion[3] - Year-end 2025 net debt is estimated at $1.3 billion, resulting in a net debt-to-FFO ratio of 1.3x[3] Production and Capital Expenditure - The company's 2025 production guidance is between 117,000 and 122,000 boe/d[3] - Exploration and Development (E&D) capital expenditures for 2025 are projected to be between $630 million and $660 million[3] - Global gas assets are expected to contribute 84% to H2/25E FFO, while legacy oil contributes 16%[3] - Global gas assets account for 90% of H2/25E production, with legacy oil making up the remaining 10%[3] Strategic Initiatives and Synergies - Post-acquisition synergies from Westbrick are now estimated to exceed $200 million NPV10[10, 14] - DCET costs in the Deep Basin have been further reduced from $9.0 million to $8.5 million per well[10] - The Wisselshorst discovery in Germany is estimated to contain 380 Bcf of gas in place (240 Bcf net)[14, 55]

Company Performance - Vermilion Energy reported a quarterly loss of $0.2 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.06, representing an earnings surprise of -233.33% [1] - The company posted revenues of $320.77 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 26.71%, and down from $350.04 million a year ago [2] - Over the last four quarters, Vermilion has not surpassed consensus EPS estimates and has topped revenue estimates only once [2] Stock Movement and Outlook - Vermilion shares have declined approximately 16.4% since the beginning of the year, contrasting with the S&P 500's gain of 7.9% [3] - The company's earnings outlook is crucial for understanding future stock performance, with current consensus EPS estimates at $0.07 for the coming quarter and $0.29 for the current fiscal year [4][7] Industry Context - The Oil and Gas - Exploration and Production - International industry, to which Vermilion belongs, is currently ranked in the bottom 18% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Vermilion's stock performance [5]

Core Insights - Vermilion Energy Inc. reported strong operational and financial results for Q2 2025, with fund flows from operations (FFO) of $260 million, a slight increase from $256 million in Q1 2025, and free cash flow (FCF) of $144 million, significantly up from $74 million in the previous quarter [4][16][21] - The company experienced a net loss of $233 million, primarily due to a non-cash adjustment related to the divestment of assets in Saskatchewan and the United States, despite net earnings of $74 million from continuing operations [4][11][17] - Production averaged 136,002 barrels of oil equivalent per day (boe/d), a 32% increase from the previous quarter, driven by contributions from the Westbrick assets and new production in the Montney region [4][17][18] Financial Performance - Fund flows from operations for Q2 2025 were $259.7 million, or $1.68 per basic share, compared to $256 million or $1.66 per share in Q1 2025 [6][34] - The company reported a net loss of $233.5 million, with net earnings from continuing operations at $74.4 million and a loss from discontinued operations of $307.8 million [6][34] - Free cash flow for the quarter was $144.2 million, up from $73.9 million in Q1 2025 [6][34] Production and Operations - Average production for Q2 2025 was 136,002 boe/d, with 63% from natural gas and 37% from crude oil and liquids [4][17] - Production from North American assets averaged 106,379 boe/d, a 44% increase from the previous quarter, while international production was 29,623 boe/d, a 1% increase [4][17] - The Montney region saw production of approximately 15,000 boe/d, an increase of 2,500 boe/d from Q1 2025, attributed to new wells and expanded takeaway capacity [4][18] Capital Expenditures and Debt Management - Exploration and development capital expenditures were $115 million, leading to a reduction in net debt from $2.1 billion at the end of Q1 2025 to $1.4 billion by June 30, 2025 [4][6] - The company returned $26 million to shareholders through dividends and share buybacks, with a quarterly cash dividend of $0.13 per share declared [4][7] - Following the divestment of assets, Vermilion expects to exit 2025 with net debt of approximately $1.3 billion [7][11] Strategic Initiatives - Vermilion is transitioning into a global gas producer, focusing on enhancing operational scale and profitability through strategic divestments and acquisitions [11][12] - The company has identified over $200 million in synergies post-acquisition of Westbrick Energy, indicating successful integration and operational efficiencies [12][15] - Future growth initiatives include expanding production in the Montney and Deep Basin regions, as well as pursuing gas acquisition opportunities in Europe [15][14] Sustainability Efforts - Vermilion achieved a 16% reduction in Scope 1 emissions intensity compared to 2019, surpassing its previous target and now focusing on a 25-30% reduction by 2030 [22][23] - The company remains committed to its Climate Strategy, which includes emission reduction, portfolio calibration, and adaptation to new technologies [23][24] Outlook - For Q3 2025, Vermilion expects production to average between 117,000 to 120,000 boe/d, primarily influenced by the recent asset divestments and planned seasonal turnarounds [7][21] - The 2025 capital budget remains unchanged, with continued emphasis on free cash flow generation and debt reduction while returning capital to shareholders [7][21]