CALGARY, Jan. 5, 2016 /PRNewswire/ - Vermilion Energy Inc.
("Vermilion", "We", "Us", or "Our") (TSX, NYSE: VET) is pleased to
announce that our Board of Directors has approved an exploration
and development ("E&D") capital budget for 2016 of $285 million.
Highlights
- Budgeted E&D investment of $285
million for 2016 represents a 41% decrease from 2015
forecasted E&D investment of $485
million, and a 59% decrease from 2014 investment of
$688 million.
- Production guidance for 2016 is 62,500 to 63,500 boe/d,
representing year-over-year growth of approximately 15%.
- At current strip prices, Vermilion expects to fully fund 2016
E&D expenditures and cash dividends from fund flows from
operations, with surplus cash generation used to reduce debt in
2016.
- Vermilion has the operational flexibility to further reduce its
2016 E&D program if commodity prices continue to weaken.
2016 E&D Budget Overview and Production Guidance
Our 2016 E&D budget of $285
million is a reduction of $65
million or 19% from our preliminary 2016 expenditure
guidance of $350 million (announced
in November 2015), and a decrease of
$200 million or 41% from our
projected 2015 E&D expenditures of approximately $485 million. This marks the second
year-over-year decrease in E&D spending in response to lower
commodity prices, and a total reduction in annual E&D
investment of more than $400 million
(59%) as compared to 2014.
We are reducing E&D investment to preserve value, maintain
our strong balance sheet, and support the long-term sustainability
of our capital markets model. At current strip prices, we
anticipate that fund flows from operations will fully fund 2016
E&D expenditures and cash dividends. Surplus funds will
be applied to debt reduction during 2016. We will continue to
monitor commodity prices and make further adjustments to our
capital program if required.
Our production guidance for 2016 is 62,500 to 63,500
boe/d. This is little changed from the range of 63,000 to
65,000 boe/d that we originally set in March
2014, before the significant decrease in commodity prices
began. We believe that our ability to substantially maintain
the original guidance - in the face of delays at Corrib and
successive reductions in capital investment in 2015 and 2016 -
demonstrates the strength of our asset base and our continuing
operational improvement.
Despite the significant decrease in E&D spending, we expect
to deliver year-over-year production growth of approximately 15% in
2016. Our robust project portfolio contains a very large set
of investment projects that offer strong return and efficiency
characteristics in the current economic environment. In
addition to imparting greater stability to our cash flows, our
geographic and commodity diversification makes it possible to
generate a high return capital program even in depressed commodity
markets, and provides the flexibility to respond to changes in
individual commodity markets when recovery occurs.
Should capital availability increase during the year as a result
of a meaningful improvement in commodity prices, we do have the
capability to increase E&D investment levels. However, we
expect that any increase would be fully funded by internal cash
generation under the prevailing commodity strip. Moreover, we
consider it highly unlikely that we would elect to invest more than
our original 2016 target of $350
million into E&D activities.
North America
Our 2016 drilling activities in North
America will predominately focus on lease expiries and
non-operated wells, in line with our objective of preserving value
during this period of commodity weakness. We expect to invest
approximately $73 million in E&D
activities in Canada in 2016,
which is 64% less than the $202
million forecasted for 2015, and 78% less than $336 million in 2014.
We expect to drill or participate in nine (4.9 net) Mannville wells in 2016. Economics for
our Mannville program,
particularly condensate-rich Ellerslie targets, remain strong in the
current commodity price environment. Our budgeted Cardium
program includes eight (2.0 net) non-operated wells. Lastly,
we intend to drill or participate in eight (6.0 net) Midale wells in our Southeast Saskatchewan light oil
play.
In the United States, we expect
to complete and tie-in two (2.0 net) wells that were drilled late
in 2015 and drill, complete and tie-in one (1.0 net) additional
well. All three wells target the Turner Sand in the Powder
River Basin of Wyoming.
Europe
Our 2016 E&D budget for the
Netherlands of $42 million
represents a decrease of 11% from our forecasted 2015 investment of
$47 million. We anticipate
drilling two (0.9 net) wells, as compared to 2015 activity of two
(1.9 net) wells. We also plan to complete a pipeline twinning
in our Gorredijk concession to address pipeline constraints that
are restricting well deliverability. Incremental production
associated with this infrastructure project is expected in 2017.
In France, we intend to
complete approximately 30 highly capital-efficient workovers with
expected rates of return in excess of 85%. Despite continued
strong economics at current strip prices, we have elected to not
proceed with a previously planned Champotran drilling program.
However, we do have the operational flexibility to reinstate
this program later in 2016 in the event we implement a
modestly-increased investment program.
In Germany, the majority of our
capital will be directed to activities associated with the farm-in
agreement we signed in July 2015. Specifically, we expect to
commence permitting and pre-drill activities for two prospects, as
well as to continue our ongoing analysis of the proprietary
geologic data associated with the farm-in assets.
Following the achievement of first gas at Corrib on December 30, 2015, capital activities in
Ireland are expected to be minimal
in 2016. The P2 well is scheduled to be tied-in to the subsea
production system during April. This well will provide
additional back-up to augment the deliverability of the other five
wells in the Corrib field.
Australia
Following our successful 2013 and 2015 drilling programs, we are
planning a two-well drilling program in Australia for 2016. Program economics
remain strong with an expected after-tax rate of return of 20% at
US$40 Brent. The Australian
drilling program requires a great deal of advance contracting and
logistical planning, which means that full-cycle costs are
minimized by proceeding with this program in the second quarter of
2016, as previously scheduled. Furthermore, we expect
services costs to be near their lows in 2016, making this a
desirable time to drill these high-quality sidetrack
locations. The majority of the budgeted $66 million of E&D expenditures for
Australia are for the drilling
program, with the remainder funding ongoing facilities maintenance,
enhancement and refurbishment.
Capital Expenditures by Country
Country
|
2015
Estimate
($mm)
|
2016
Budget*
($mm)
|
2016 vs.
2015
%
Change
|
Canada
|
$
|
202
|
|
$
|
73
|
(64%)
|
France
|
|
92
|
|
|
70
|
(24%)
|
Netherlands
|
|
47
|
|
|
42
|
(11%)
|
Germany
|
|
6
|
|
|
8
|
33%
|
Australia
|
|
63
|
|
|
66
|
5%
|
USA
|
|
12
|
|
|
14
|
17%
|
Ireland
|
|
63
|
|
|
9
|
(86%)
|
Central and Eastern
Europe
|
|
-
|
|
|
3
|
-
|
Total E&D
Capital Expenditures
|
$
|
485
|
|
$
|
285
|
(41%)
|
|
|
|
|
|
|
|
Total Development Capital by Category
Category
|
2015
Estimate
($mm)
|
|
2016
Budget*
($mm)
|
Drilling, completion,
new well equipment and tie-in, workovers and
recompletions
|
$
|
327
|
|
$
|
165
|
Production equipment
and facilities
|
|
122
|
|
|
75
|
Seismic, studies,
land and other
|
|
36
|
|
|
45
|
Total E&D
Capital Expenditures
|
$
|
485
|
|
$
|
285
|
|
* 2016 Budget
reflects foreign exchange assumptions of USD/CAD 1.38, CAD/EUR 1.52
and CAD/AUD 0.99.
|
Commodity Hedging
Vermilion hedges to manage commodity, currency and interest rate
exposure risks. We currently have more than 20% of our
expected net-of-royalty production hedged for 2016, including 41%
of our anticipated European gas volumes. Given our focus on
growth in European natural gas, we continue to hedge into the 2016
through 2018 periods as suitable opportunities arise. Our
2016 European gas hedge collars are at an average floor price of
C$8.66/mmbtu and an average ceiling
price of C$10.14/mmbtu, and our swaps
are at an average price of C$9.78/mmbtu. We have 21% of our net of
royalty European gas volumes hedged for 2017 with collars at an
average floor price of C$8.00/mmbtu
and an average ceiling price of C$9.98/mmbtu, and swaps at an average price of
C$8.57/mmbtu. Approximately 11%
of our net of royalty European gas volumes are hedged for 2018 with
collars at an average floor price of C$6.80/mmbtu and an average ceiling price of
C$8.48/mmbtu, and swaps at an average
price of C$8.54/mmbtu. Forward
prices for European natural gas remain at two to three times the
price of Canadian natural gas.
For additional information on our current hedge position, please
visit our website at
http://www.vermilionenergy.com/ir/hedging.cfm.
Sustainability
Vermilion is committed to managing our business in a financially
sustainable manner that preserves value while delivering reliable
and growing dividends to our shareholders over the long term.
Our significant reduction in E&D expenditures for 2016 supports
this objective, while our diversified asset base is expected to
continue to deliver substantial year-over-year production growth
despite significantly lower investment. If commodity prices
continue to weaken, we have the operational flexibility to further
reduce our 2016 E&D program to support the sustainability of
our dividend and our balance sheet. We intend to direct any
excess fund flows from operations in 2016 towards debt
reduction.
Maintaining the strength of our balance sheet remains
paramount. The sustainability of our dividend also remains a
key priority for us, and we have never reduced it since it was
initiated in 2003. Over the past thirteen years, we have paid
out over $2.3 billion in dividends to
our shareholders. We expect to maintain our current
$0.215 per share monthly dividend in
the current commodity price environment.
About Vermilion
Vermilion is an international energy producer that seeks to
create value through the acquisition, exploration, development and
optimization of producing properties in North America, Europe and Australia. Our business model targets annual
organic production growth, along with providing reliable and
increasing dividends to investors. Vermilion is targeting
growth in production primarily through the exploitation of light
oil and liquids-rich natural gas conventional resource plays in
Canada and the United States, the exploration and
development of high impact natural gas opportunities in
the Netherlands and Germany, and through oil drilling and workover
programs in France and
Australia. Vermilion also holds an
18.5% working interest in the Corrib gas field in Ireland. Vermilion pays a monthly
dividend of Canadian $0.215 per
share, which provides a current yield of approximately 7%.
Management and directors of Vermilion hold approximately 6% of the
outstanding shares, are committed to consistently delivering
superior rewards for all stakeholders, and have delivered a 20-year
history of market outperformance. Vermilion trades on the
Toronto Stock Exchange and the New York Stock Exchange under the
symbol VET.
Natural gas volumes have been converted on the basis of six
thousand cubic feet of natural gas to one barrel equivalent of
oil. 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.
DISCLAIMER
Certain statements included or incorporated by reference in this
press release 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
press release may include, but are not limited to:
- anticipated 2016 E&D expenditures, including the location,
type and impact of expenditures;
- anticipated amount of 2015 E&D expenditures;
- our balance sheet strength and the sustainability of our
dividend in a protracted weak oil price environment;
- anticipated 2016 average daily production, including
anticipated overall annual production growth rates;
- ability to further reduce 2016 capital program in weaker price
environment;
- continued supportive fundamentals for European gas;
- ability to provide production growth and a reliable and growing
dividend over the long-term.
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. 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 and natural gas and market
demand;
- risks and uncertainties involving geology of oil and natural
gas deposits;
- risks inherent in Vermilion's marketing operations, including
credit risk;
- the uncertainty of reserves estimates and reserves life;
- the uncertainty of estimates and projections relating to
production, costs and expenses;
- potential delays or changes in plans with respect to proposed
acquisitions, exploration or development projects or capital
expenditures;
- Vermilion's ability to enter into or renew leases;
- fluctuations in oil 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
development and exploration activities;
- general economic and business conditions;
- 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.
SOURCE Vermilion Energy Inc.