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Vermilion Energy(VET) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Vermilion Energy generated record fund flows of $1.6 billion and record free cash flow of $1.1 billion, representing year-over-year increases of 78% and 99% respectively [5] - The company reduced net debt by $300 million, exiting the year with net debt of $1.3 billion and a net debt to fund flow ratio of 0.8 times, the lowest leverage in over 10 years [6][36] - In Q4 2022, fund flows were reported at $284 million, which included the full year impact of temporary EU windfall taxes; excluding this tax, Q4 fund flow would have been $507 million [7] Business Line Data and Key Metrics Changes - Production for Q4 was 85,450 BOE per day, slightly up from the prior quarter, impacted by unplanned downtime in Australia and third-party downtime in North America [8] - North American assets averaged production of 58,499 BOE per day, a 2% increase from the prior quarter, mainly due to new production from Montney assets [8] - International assets averaged 26,953 BOE per day, down slightly from the prior quarter due to natural decline in the Netherlands and Germany, as well as lower-than-anticipated production in Australia [12] Market Data and Key Metrics Changes - European gas prices averaged $48 per MMBtu in 2022, with a range from just under $30 to over $120; however, prices have decreased recently due to a warmer winter [16][17] - Approximately 40% of the forecasted 2023 corporate gas production is produced in Europe, sold directly into the European market [17] Company Strategy and Development Direction - The company is focused on financial discipline, strategic acquisitions, and enhancing its asset base, including the acquisition of Leucrotta Exploration to enter the Montney resource play [4][36] - Vermilion plans to return up to 25% of free cash flow to shareholders until achieving a debt target of $1 billion, after which it intends to increase shareholder returns [33][49] Management's Comments on Operating Environment and Future Outlook - Management expects elevated European gas prices to persist due to strong fundamentals, including declining domestic supply and reduced Russian pipeline supply [20][21] - The company views the recent agreements with First Nations in British Columbia as a positive development for future resource development [10] Other Important Information - The company completed a divestment of approximately 5,500 BOE per day of non-core light oil assets for $225 million, part of a strategy to reposition for long-term success [22][24] - Vermilion's proved plus probable reserves increased by 9% to 523 million BOE, with a reserve life index of 16.8 years [14][15] Q&A Session Summary Question: Montney development plans and production outlook for 2024 - Management confirmed plans to drill nine wells in 2023, with seven in Alberta and two in British Columbia, and discussed plans for 2024 to ramp up production to 12,000 to 13,000 BOE per day [39][44] Question: Negative technical revisions in reserves - Management explained that technical revisions were primarily in Saskatchewan, aligning with capital allocation priorities and the acquisition of Montney assets [45] Question: Shareholder capital returns and buyback strategy - Management indicated that the focus for 2023 is on achieving the $1 billion debt target while balancing shareholder returns through buybacks and dividends [49]