Vermilion Energy(VET) - 2025 Q1 - Quarterly Report

Company Overview and Q1 2025 Highlights Q1 2025 Performance Highlights Vermilion generated $256 million FFO and $74 million FCF in Q1 2025, with production averaging 103,115 boe/d, boosted by the Westbrick acquisition and successful German deep gas exploration | Financial Metric | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Fund Flows from Operations (FFO) | $256 million | $263 million | | Free Cash Flow (FCF) | $74 million | $62 million | | Production | 103,115 boe/d | 83,536 boe/d | | Net Debt | $2,063 million | $967 million | - Closed the Westbrick acquisition, adding approximately 50,000 boe/d and establishing a dominant position in the Deep Basin of Alberta, with identified operational and development synergies of approximately $100 million (NPV10)[18][40][47] - Successfully tested the Wisselshorst deep gas exploration well in Germany, with a combined test flow rate of 41 mmcf/d from two zones, and the Osterheide well was brought online, producing at a restricted rate of approximately 7 mmcf/d[18][49][51] - Reduced drilling, completion, equipment, and tie-in (DCET) costs at the Mica Montney to approximately $9 million per well, improving development economics and representing a significant reduction in future development costs[18] 2025 Outlook and Guidance Vermilion's 2025 capital budget and guidance remain unchanged, prioritizing free cash flow and debt reduction, with Q2 production forecasted at 134,000-136,000 boe/d | Category | 2025 Current Guidance | | :--- | :--- | | Production (boe/d) | 125,000 - 130,000 | | E&D capital expenditures ($MM) | $730 - 760 | - Q2 2025 production is anticipated to average between 134,000 to 136,000 boe/d (62% natural gas), reflecting the full contribution from the Westbrick acquisition[18][54] - The company is prepared to adjust its capital program if necessary due to market volatility, supported by approximately $1 billion of liquidity and no near-term debt maturities[18][42] - A quarterly cash dividend of $0.13 per common share was declared, payable on July 15, 2025[18] Message to Shareholders Management emphasized the strategic Westbrick acquisition and European gas exploration, while actively managing market volatility and initiating asset divestitures for debt reduction - The combination of the Westbrick acquisition, European gas exploration success, and Mica Montney development enhances Vermilion's profile as a global gas producer[40] - The company is managing market volatility with over 50% of net-of-royalty production hedged for the remainder of 2025, approximately $1 billion in liquidity, and no near-term debt maturities[42] - A formal sales process for oil-weighted assets in Saskatchewan and Wyoming (approx. 15,000 boe/d in Q1) was initiated to accelerate debt reduction and reallocate capital to growth assets[41] Financial Performance Consolidated Financial Results (Q1 2025) Q1 2025 FFO decreased 41% to $256 million due to lower derivative gains, while net earnings increased significantly to $15 million, and sales grew 12% to $568.8 million | ($M except per share) | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Petroleum and natural gas sales | 568,846 | 508,035 | +12% | | Fund flows from operations (FFO) | 256,029 | 431,358 | -41% | | FFO per share | $1.66 | $2.68 | -38% | | Net earnings | 14,953 | 2,305 | +549% | | Capital expenditures | 182,119 | 190,442 | -4% | - The decrease in FFO was primarily driven by lower realized gains on derivative contracts, which fell by $209.5 million compared to the prior-year period[107] - The significant increase in net earnings was mainly due to a $175.1 million positive change in unrealized derivative losses compared to Q1 2024[103] Production Analysis Q1 2025 total production increased 21% year-over-year to 103,115 boe/d, driven by the Westbrick acquisition and growth in natural gas and NGLs | Production | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (bbls/d) | 32,386 | 32,695 | -1% | | NGLs (bbls/d) | 9,167 | 7,046 | +30% | | Natural gas (mmcf/d) | 369.36 | 274.59 | +35% | | Total (boe/d) | 103,115 | 85,505 | +21% | - The increase in consolidated production was primarily the result of the Westbrick acquisition, which closed at the end of February 2025[108] - North American production averaged 73,760 boe/d, a 41% increase from Q4 2024, while International production averaged 29,355 boe/d, a 6% decrease from Q4 2024[44][123][132] Segment Performance North American operations generated $115.5 million FFO on 73,760 boe/d, while International operations generated $174.4 million FFO on 29,355 boe/d, benefiting from premium European gas prices North America North American operations saw a 41% production increase, driven by the Westbrick acquisition and active drilling programs across multiple basins | North America (Q1 2025) | $M | $/boe | | :--- | :--- | :--- | | Sales | 266,417 | 40.13 | | Fund flows from operations | 115,506 | 17.39 | | Drilling and development | (130,810) | - | - Production increased 41% from the previous quarter, primarily due to the Westbrick acquisition and resumption of production following prior quarter downtime[123] - Key activities included drilling 5 Montney wells, 4 Deep Basin wells (including Westbrick), 2 Saskatchewan wells, and participating in 2 non-operated US wells[111][124][125] International International operations generated higher FFO despite lower volumes, benefiting from premium European natural gas prices and new production from Croatia | International (Q1 2025) | $M | $/boe | | :--- | :--- | :--- | | Sales | 302,429 | 117.22 | | Fund flows from operations | 174,350 | 67.58 | | Capital Expenditures (D&D + E&E) | (51,309) | - | - Sales increased year-over-year despite lower volumes, driven by higher realized European natural gas prices and new production from Croatia[136] - Key activity was in Germany, with the drilling of two wells, including the Weissenmoor South deep gas exploration well, and bringing the Osterheide well online[133] Commodity Prices and Realizations Mixed commodity prices influenced results, with European natural gas (TTF) surging 77% and Vermilion's realized gas price at $7.80/mcf, significantly above AECO | Benchmark Prices (Q1 2025) | Price | YoY Change | | :--- | :--- | :--- | | WTI (US $/bbl) | $71.42 | -7% | | Dated Brent (US $/bbl) | $75.66 | -9% | | AECO ($/mcf) | $2.17 | -13% | | TTF ($/mcf) | $20.81 | +77% | - Vermilion's average realized natural gas price was $7.80/mcf, benefiting from a premium on European pricing, with approximately 28% of its gas production exposed to this premium[18][121] - European natural gas prices increased significantly due to higher global LNG demand, the termination of Russian gas exports through Ukraine, and below-average storage levels[121] Financial Position and Capital Management Debt and Liquidity Net debt more than doubled to $2.1 billion by March 31, 2025, primarily for the Westbrick acquisition, increasing the net debt to FFO ratio to 1.7x, while maintaining over $1 billion in liquidity | Metric | Mar 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Long-term debt | $1,874.0 M | $963.5 M | | Net debt | $2,062.8 M | $966.9 M | | Net debt to four quarter trailing FFO | 1.7x | 0.8x | - The increase in long-term debt was driven by the Westbrick acquisition, funded by a new $450 million term loan and a US$400 million (2033) senior notes issuance, partially offset by the repayment of US$300 million (2025) notes[114][175][182] - As of March 31, 2025, Vermilion had $1,020.6 million in unutilized capacity on its revolving credit facility[172][274] Capital Expenditures Q1 2025 capital expenditures totaled $182.1 million, a 4% decrease year-over-year, with spending primarily in North America and Germany's deep gas exploration program | Capital Expenditures by Country ($M) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Canada | 125,643 | 124,282 | | United States | 5,167 | 12,227 | | Germany | 25,235 | 24,028 | | Other International | 25,074 | 29,905 | | Total | 182,119 | 190,442 | - North American capital of $130.8 million was focused on drilling and completion activities in the Montney and Deep Basin[111] - International capital of $51.3 million was primarily directed towards drilling in Germany ($25.2M), facilities work in Australia ($9.7M), and a gas field interconnector project in the Netherlands ($7.7M)[111] Shareholder Returns Vermilion returned $37 million to shareholders in Q1 2025, comprising $20 million in dividends (increased to $0.13/share) and $17 million in share buybacks - Declared a quarterly dividend of $0.13 per share, an increase from the previous $0.12 per share[18][188] - Repurchased and cancelled 1.3 million common shares for a total of $16.6 million under the NCIB program during Q1 2025[18][190] - Total dividends declared in Q1 2025 amounted to $20.0 million[19][288] Business and Strategy Westbrick Energy Acquisition Vermilion acquired Westbrick Energy for $1.1 billion, adding 50,000 boe/d and establishing a dominant Deep Basin position, with integration progressing ahead of schedule and $100 million (NPV10) synergies identified - Acquired Westbrick Energy for total consideration of $1.1 billion, paid with cash and 1.1 million Vermilion shares[259] - The acquisition adds a production base of over 75,000 boe/d in the Deep Basin and over 1.1 million net acres of land[41] - Identified operational and development synergies, including longer laterals, improved gas marketing, and infrastructure optimization, valued at approximately $100 million (NPV10)[18][47] European Exploration Program Germany's deep gas exploration program proved 85 Bcf (60 Bcf net) reserves, with the Wisselshorst well testing at 41 mmcf/d, and an estimated after-tax NPV of $150 million for three wells - The three-well deep gas program in Germany has proven up 85 Bcf (60 Bcf net) from the first two wells and identified a structure supporting up to six follow-up drilling locations[52] - The Wisselshorst well tested at a combined restricted rate of 41 mmcf/d from two zones and is expected to come on production in H1 2026[18][49] - The after-tax net present value of the three wells drilled to date is estimated at approximately $150 million ($1.00/basic share), with positive cash flow beginning in Q2 2025[52] Asset Portfolio Management Vermilion initiated a formal sales process for Saskatchewan and Wyoming oil assets (15,000 boe/d) to accelerate debt reduction and began relinquishing its Kadarkut license in Hungary - Initiated a formal sales process for oil-weighted assets in Saskatchewan and Wyoming, which produced approximately 15,000 boe/d in Q1 2025[41] - Proceeds from potential divestments will be used to accelerate debt reduction and free up capital for long-term growth assets[41] - The company has initiated the process to relinquish the Kadarkut license in Hungary with an expected minimal economic impact[53] Supplementary Information Hedging Strategy Vermilion hedged 52% of its expected net-of-royalty production for the remainder of 2025 to manage commodity price volatility and stabilize cash flows - In aggregate, 52% of expected net-of-royalty production is hedged for the remainder of 2025[57] | Commodity | % Hedged (Remainder of 2025) | | :--- | :--- | | European Natural Gas | 55% | | Crude Oil | 42% | | North American Natural Gas | 55% | Non-GAAP and Other Specified Financial Measures The report utilizes non-GAAP measures like FFO, FCF, and Net Debt to provide additional insight into performance, with reconciliations to IFRS measures provided - Fund flows from operations (FFO) is used to assess the ability to generate income for dividends, debt repayment, and capital investments[20][63] - Free cash flow (FCF) is defined as FFO less capital expenditures and is used to determine funding available for investing and financing activities[24][67] - Net debt is a capital management measure calculated as long-term debt plus adjusted working capital deficit, representing net financing obligations[26][78] Key Disclosures and Risks The report contains forward-looking statements subject to risks like operational hazards, commodity price volatility, and regulatory changes, with financial statements prepared under IFRS - The document contains forward-looking statements concerning capital expenditures, production guidance, business strategies, and other future outcomes, which are subject to numerous risks and assumptions[5][6][7] - Key risks include operational hazards, geological uncertainties, commodity price volatility, foreign exchange fluctuations, and regulatory changes[7][195] - The scope of internal controls over financial reporting for Q1 2025 excludes the recently acquired Westbrick Energy, as permitted by regulations[198]