Vermilion Energy(US:VET)2025-11-06 17:00Financial Data and Key Metrics Changes - Vermilion generated CAD 254 million in fund flows from operations in Q3, with free cash flow of CAD 108 million after exploration and development capital expenditures of CAD 146 million [7] - Net debt has been reduced by over CAD 650 million since Q1 2023, bringing net debt to under CAD 1.4 billion as of September 30, resulting in a net debt to four-quarter trailing fund flows from operations ratio of 1.4 times [7][8] - The company returned CAD 26 million to shareholders through dividends and share buybacks during the quarter, comprising CAD 20 million in dividends and CAD 6 million in share buybacks [7] Business Line Data and Key Metrics Changes - Q3 production averaged 119,062 BOE per day with a 67% gas weighting, at the upper end of guidance [8] - In North America, production averaged 88,763 BOE per day, while international operations averaged 30,299 BOE per day, up 2% from the previous quarter [8] - The Deep Basin drilling program exceeded expectations, with 12 wells completed, six testing over 10 million cubic feet per day of gas production [36] Market Data and Key Metrics Changes - The realized gas price in Q3 was CAD 4.36 per MCF, significantly outperforming the AECO 5A pricing, with Canadian realized prices more than double the AECO benchmark [4][26] - Including hedging gains, the realized price increased to CAD 5.62 per MCF, highlighting the strategic advantage of being a global gas producer [4][28] Company Strategy and Development Direction - The company has repositioned its asset base, concentrating 85% of production and capital in its global gas business, which is expected to drive sustainable long-term success [4] - The 2026 budget includes an exploration and development capital budget of CAD 600 million to CAD 630 million, with approximately 85% allocated to the global gas portfolio [10] - The focus is on operational excellence and financial discipline, with plans to invest in high-return, liquids-rich gas wells in the Montney and Deep Basin [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain production guidance while reducing exploration and development capital guidance, reflecting improved capital efficiency [14][15] - The company is well-positioned to benefit from improving gas prices, with significant free cash flow expected from key development assets [29] - The intention to increase the quarterly cash dividend by 4% reflects confidence in operational activities and financial performance [13] Other Important Information - The company plans to bring the discovery well at Visselhöhe online in Germany in 2026 and expand takeaway capacity over the next two years [5][10] - In the Netherlands, two successful wells were drilled, discovering gas in two zones, with production expected to commence in Q4 2025 [9][35] Q&A Session Summary Question: Current volumes and setup for Australia through 2026 and 2027 - Management indicated that current volumes are around 4,000 barrels per day, with the next drilling program tentatively planned for 2027, depending on rig rates and commodity prices [18] Question: Balancing share buybacks and dividend growth - Management emphasized the focus on driving per share value through various means, including share buybacks and maintaining a strong balance sheet, while also reserving excess free cash flow for debt reduction [20][21] Question: Drivers behind the realized gas price being seven times the AECO price - The diversified portfolio, including strong Canadian and European gas operations, contributed to the high realized price, with strategic decisions to shut in and defer wells without impacting liquids production [26][27] Question: Next steps for the Visselhöhe prospect in Germany - The first discovery well is expected to be tied in and producing by Q2 2026, with follow-up wells planned for January 2027 [31][32] Question: Discoveries in the Netherlands - Two successful wells were drilled, discovering about 16 BCF gross of recoverable gas, with production expected to commence in Q4 [35] Question: Results of the Q3 drilling program in the Deep Basin - The program exceeded expectations, with strong initial test results and coming in under budget, indicating the benefits of a consistent drilling program [36]