CALGARY, Jan. 15, 2018 /CNW/ - Vermilion Energy Inc.
("Vermilion", the "Company", "We" or "Our") (TSX, NYSE: VET) is
pleased to announce that we have entered into an arrangement
agreement (the "Arrangement") to acquire a private southeast
Saskatchewan producer
("Privateco") for total cash consideration of $90.8 million (the "Purchase Price").
Under the terms of the Arrangement, Vermilion has agreed to
acquire (the "Acquisition") all of the issued and outstanding
common shares ("Privateco Shares") in the capital of Privateco,
including all Privateco Shares issuable, in accordance with the
terms of existing grants of options or warrants, prior to the
effective time of the Arrangement, and assume all outstanding debt
of the Privateco. The Purchase Price will be funded from
Vermilion's existing credit facilities.
The Board of Directors of Privateco has unanimously approved the
Arrangement and recommended that Privateco shareholders vote in
favour of the Arrangement. The Arrangement remains subject to
customary closing conditions, including receipt of applicable
court, Privateco shareholder and regulatory approvals, and is
expected to close on or about February
15th, 2018.
The Acquisition is comprised of high netback, low base decline,
light oil producing fields in the Sinclair and Fertile areas,
straddling the Saskatchewan/Manitoba border, approximately 55 km northeast
of Vermilion's existing operations in southeast Saskatchewan (the "Assets"). The Assets
include approximately 42,600 net acres of land (approximately 100%
W.I.), three oil batteries, and associated pipelines, along with
the necessary water infrastructure to facilitate the existing seven
waterflood projects and initiate up to eight additional waterflood
projects. The Assets produced approximately 1,150 bbl/d of
40° API oil during Q4 2017, sourced from the Bakken/Three Forks
formation. All of the current production and infrastructure
will be 100% owned and operated by Vermilion.
Total proved plus probable ("2P") reserves attributed to the
Assets at December 31, 2017 are
6.7(1) mmboe (100% crude oil), based on an independent
evaluation by GLJ Petroleum Consultants Ltd. The Assets
demonstrate a low base decline rate of approximately 15% at
present, and are expected to have even lower decline rates over
time. Areas under waterflood have decline rates of less than
10% with certain areas of flat or increasing production.
Approximately 45% of the production comes from active
waterflood projects, leaving significant opportunity to expand the
waterflood.
The Acquisition is accretive on a fully-diluted per share basis
for all pertinent metrics including production, fund flows from
operations(2), reserves and net asset value.
Making no deduction for undeveloped land value, transaction
metrics equate to $13.55 per boe of
2P reserves, and $79,000 per flowing
barrel of production. Based on 2018 WTI strip pricing of
US$61.83/bbl, the operating netback
for the Assets is estimated at approximately $51.80 (2) per boe. Using the 2P
finding, development and acquisition cost (based on the reserves in
the GLJ report) of $19.02 per boe
(including future development capital), the Assets are expected to
deliver a 2P after-tax fund flows recycle ratio of 2.7
times.
Using the same strip pricing assumption, the total Acquisition
cost (including assumed debt) is approximately 5.1 times estimated
annualized 2018 fund flows from operations ("FFO"), after deducting
incremental interest expense. Calculated on a debt-adjusted
cash flow basis, the total Acquisition cost (including assumed
debt) is approximately 4.6 times. Pro-forma the acquisition,
our year end 2018 debt-to-FFO ratio is forecast to be 2.0 times
based on January 11, 2018 strip
pricing, as compared to 1.9 times prior to the acquisition.
The Acquisition complements our current southeast Saskatchewan operations and will be managed
out of our existing field office in the area. Furthermore,
the Acquisition aligns with our sustainable growth-and-income model
by targeting low risk assets with high netbacks, strong free cash
flow generation, low base decline rates and strong capital
efficiencies on future development.
As a result of the Acquisition, and based on a mid-February
closing date, we are revising our 2018 production guidance to
between 75,000 and 77,500 boe/d (from 74,500 to 76,500 boe/d
previously). We are also increasing our 2018 capital budget
to $325 million (from $315 million previously) to reflect additional
capital activity on these assets planned for the second half of the
year.
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 emphasizes
organic production growth augmented with value-adding acquisitions,
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 currently 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 5.5%.
Vermilion's priorities are health and safety, the environment,
and profitability, in that order. Nothing is more important
to us than the safety of the public and those who work with us, and
the protection of our natural surroundings. We have been
recognized as a top decile performer amongst Canadian publicly
listed companies in governance practices, as a Climate Leadership
level (A-) performer by the CDP, and a Best Workplace in the Great
Place to Work® Institute's annual rankings in Canada, France and the Netherlands. In addition,
Vermilion emphasizes strategic community investment in each of our
operating areas.
Employees and directors hold approximately 6.5% of our fully
diluted shares, are committed to consistently delivering superior
rewards for all stakeholders, and have delivered over 20 years 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 ("mcf") 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.
(1)
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Estimated total
proved and proved plus probable reserves attributable to the Assets
as evaluated by GLJ Petroleum Consultants Ltd. in a report dated
January 12, 2018 with an effective date of December 31, 2017, in
accordance with National Instrument 51-101 – Standards for
Disclosure for Oil and Gas Activities of the Canadian Securities
Administrators, using the GLJ (2018-01) price forecast (the "GLJ
Report")
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(2)
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Non-GAAP Financial
Measures: Netbacks, fund flows from operations, and free cash flow
are non-GAAP (as defined herein) or additional GAAP financial
measures that do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS" or,
alternatively, "GAAP") and therefore may not be comparable with the
calculations of similar measures for other entities.
"Netbacks" are per boe and per mcf measures used in
operational and capital allocation decisions. "Fund flows
from operations" represents cash flows from operating activities
before changes in non-cash operating working capital and asset
retirement obligations settled. Management considers fund
flows from operations and fund flows from operations per share to
be key measures as they demonstrate Vermilion's ability to generate
the cash necessary to pay dividends, repay debt, fund asset
retirement obligations and make capital investments.
Management believes that by excluding the temporary impact of
changes in non-cash operating working capital, fund flows from
operations provides a useful measure of Vermilion's ability to
generate cash that is not subject to short-term movements in
non-cash operating working capital. For relevant operating
netback related disclosures please refer to the reconciliation in
management's discussion and analysis contained in Vermilion's 2016
Annual Report for the year ended December 31, 2016 available on
SEDAR or at the company's website
(www.vermilionenergy.com).
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DISCLAIMER
Certain statements included or incorporated by reference in this
press release may constitute forward-looking statements under
applicable securities legislation. 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:
- the anticipated closing date of the Acquisition;
- the actual amount of debt assumed upon closing of the
Acquisition;
- the sources of existing production and future development
drilling opportunities;
- the annual decline rate of the Assets;
- the number and classification of future development drilling
opportunities;
- the pricing received for production, and resulting operating
and after-tax cash flow netbacks for the Assets;
- the estimate of annualized 2018 fund flows from
operations;
- the anticipated acquisition metrics;
- the expectation that fiscal and regulatory policies in
Saskatchewan and Manitoba remain supportive of continued
investment;
- exploration and development capital expenditure expectations
for 2018; and
- development plans and strategic objectives.
Statements relating to reserves are deemed to be forward-looking
statements as they involve the implied assessment, based on certain
estimates and assumptions, that the reserves described exist in the
quantities predicted or estimated, and can be profitably produced
in the future. Such forward-looking statements or information
are based on a number of assumptions all or any of which may prove
to be incorrect. In addition to any other assumptions
identified in this document, assumptions have been made regarding,
among other things:
- satisfaction of all conditions to the proposed Acquisition and
receipt of all necessary approvals.
- the ability of Vermilion to obtain equipment, services and
supplies in a timely manner to carry out planned development
activities;
- the ability of Vermilion to market oil and natural gas
successfully to current and new customers;
- the timely receipt of required regulatory approvals;
- currency, exchange and interest rates;
- future oil and natural gas prices; and
- Management's expectations relating to the timing and results of
development activities.
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 (including the Acquisition), 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.