CALGARY, Nov. 10, 2014 /CNW/ – Vermilion Energy Inc. (“Vermilion”, “We”, “Our”, “Us” or the “Company”) (TSX, NYSE: VET) is pleased to report operating and unaudited financial results for the three and nine months ended September 30, 2014.
- Achieved average production of 49,920 boe/d during Q3 2014, a decrease of 4% as compared to 52,089 boe/d in the prior quarter and an increase of 20% compared to 41,510 boe/d in Q3 2013. Lower quarter-over-quarter production was primarily due to a 7% decrease in Canada resulting from lower levels of drilling and completions activity during spring breakup, and managed production in Australia and the Netherlands consistent with overall corporate production targets. Quarter-over-quarter declines from lower Canadian activity were partially offset by inclusion of a full quarter of production from our southeast Saskatchewan acquisition, which closed in late April 2014. Q3 production volumes in the Netherlands were also affected by unscheduled downtime at our Garijp treating facility.
- Generated fund flows from operations(1) in Q3 2014 of $197.9 million ($1.85/basic share), as compared to $216.1 million ($2.05/basic share) in the prior quarter and $165.6 million ($1.63/basic share) in Q3 2013. The quarter-over-quarter decrease was primarily attributable to lower commodity pricing during Q3 2014, and a combined build in crude oil inventories in France and Australia of approximately 104,000 bbls.
- Completed our first Duvernay horizontal appraisal well (35% working interest), which is located along a shared lease-line in the Pembina block. This three-quarter mile long well was brought on production subsequent to the end of the third quarter and has produced for 16 days. Raw gas rate has averaged 2.2 mmcf/d (expected sales gas rate of 1.8 mmcf/d after liquids shrink and plant fuel) with an estimated hydrocarbon liquids rate of approximately 180 bbls/d (approximately 60% pentanes plus). The well is producing at restricted rates using a 12/64 inch downhole choke to generate an estimated flowing bottomhole pressure of 4,200 psi (approximately 55% drawdown). Our second Duvernay horizontal appraisal well (100% working interest), located in the Edson block, is expected to be brought on production late in Q4 2014.
- Drilled our first well in the Netherlands on lands acquired in October 2013. The Diever-02 exploration well (45% working interest), in the Drenthe IIIb concession, encountered two well-developed gas bearing intervals (Akkrum and Slochteren) with a net pay thickness of approximately 36 metres. A three-hour clean-up test was conducted on the Slochteren formation which delivered 25.7 mmcf/d of gas on a 40/64 inch choke with 2,615 psi flowing tubing pressure with no indications of pressure drop during the test(3). The flow rate was limited by the 3.5 inch diameter of the tubing and the capacity of the test equipment. The well is expected to be tied-in with production from the Slochteren formation in Q4 2015 at an estimated rate of approximately 1,000 boe/d, net to Vermilion. The Akkrum formation will be perforated at a later date once the Slochteren formation has been fully produced.
- Subsequent to the end of the third quarter, drilled a gas discovery well in the Netherlands at the Langezwaag-02 location (42.3% working interest) in the Gorredijk concession. This extended reach well recorded significant gas shows in two metres of Vlieland Sandstone and 21 metres of Zechstein-2 Carbonate. Open hole logs could not be run in the highly deviated well. The Langezwaag-02 well was first flow tested from the Zechstein-2 Carbonate at 12.4 mmcf/d through a 48/64 inch choke at a flowing tubing pressure of approximately 1,300 psi. A second flow test in the Vlieland Sandstone yielded rates of 2.7 mmcf/d through a 32/64 inch choke at a flowing tubing pressure of approximately 960 psi.
- Subsequent to the end of the third quarter, recorded first production from the Deblinghausen Z7a well (25% working interest) in Germany. This well was drilled earlier in 2014 by operator ExxonMobil Production Deutschland GmbH, and encountered 81 metres of Zechstein Carbonate pay. Initial gross production rates are approximately 16.5 mmcf/d of raw gas at a flowing tubing pressure of approximately 1,300 psi.
- Successfully expanded our southeast Saskatchewan land base through the purchase at Crown land sales of an additional approximately 15,000 net acres of undeveloped land to the northwest of our existing lands at an average cost of approximately $1,860 per acre.
- Completed our first acquisition in the United States at a cost of approximately $11.1 million. Through the transaction, we acquired approximately 68,000 acres of land (98% undeveloped) in the Powder River basin of northeastern Wyoming with current working interest production of approximately 200 bbls/d (100% oil), proved plus probable reserves estimated at 2.22 million boe (82% oil) and contingent resource of 10.02 million boe (82% oil). Transaction metrics, with no deduction for land value, equate to approximately $56,000 per boe/d and $20.98 per boe, including future development costs of approximately $35.3 million. The land base includes 53,000 net acres at an average operated working interest of 70% in a promising tight oil project in the Turner Sand at a depth of approximately 1,500 metres.
- Our Corrib project in Ireland has continued to progress on schedule following the completion of tunnel boring operations in May 2014. Project operator Shell Exploration & Production Ireland Ltd. (SEPIL) successfully completed offshore workover and pipeline operations during the third quarter. SEPIL also significantly advanced tunnel outfitting, which is now estimated to be approximately 95% complete. Remaining activities include completion of tunnel outfitting and grouting, commissioning of the gas processing facility, and finalization of operating permits. We anticipate first gas from Corrib in approximately mid-2015, with peak production estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.
- We are revising our 2014 average annual production guidance from the previous range of 48,500-49,500 boe/d to a range of 49,000-49,500 boe/d, and expect full year production to be near the upper end of this new range. We currently anticipate providing 2015 production and capital expenditure guidance in early December 2014.
- We celebrated our 20th Anniversary as a publicly traded company in 2014. This has been a rewarding period of growth and achievement for our company, and we are proud of our progress to date. Most importantly, we are honored to have provided our shareholders with a compound average total return including dividends, as of September 30, 2014, of 36.4% per annum since our inception. With the consistent strength of our operations and our extensive opportunity base, we will strive to provide continued strong financial performance, and a reliable and growing dividend stream to investors.
|(1)||Additional GAAP Financial Measure. Please see the “Additional and Non-GAAP Financial Measures” section of Management’s Discussion and Analysis.|
|(2)||Estimated proved plus probable reserves and contingent resources attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd. in a report dated October 28, 2014, with an effective date of July 1, 2014, using the GLJ (2014-07) price forecast.|
|(3)||Test results are not necessarily indicative of long-term production performance or of ultimate recovery.|
Vermilion Energy Inc. Third Quarter 2014 Conference Call and Audio Webcast Details
Vermilion will discuss these results in a conference call to be held on Monday, November 10, 2014 at 9:00 AM MST (11:00 AM EST). To participate, you may call 1-888-231-8191 (Canada and US Toll Free) or 1-647-427-7450 (International and Toronto Area). The conference call will also be available on replay by calling 1-855-859-2056 using conference ID number 6117964. The replay will be available until midnight eastern time on November 17, 2014.
You may also listen to the audio webcast at http://event.on24.com/r.htm?e=852632&s=1&k=79DE9E8E7910A2E76368C9BFBF328E76 or visit Vermilion’s website at www.vermilionenergy.com/ir/eventspresentations.cfm.
Certain statements included or incorporated by reference in this document may 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 document may include, but are not limited to: capital expenditures; business strategies and objectives; operational and financial performance; estimated reserve quantities and the discounted present value of future net cash flows from such reserves; petroleum and natural gas sales; future production levels (including the timing thereof) and rates of average annual production growth; estimated contingent resources and prospective resources; exploration and development plans; acquisition and disposition plans and the timing thereof; operating and other expenses, including the payment and amount of future dividends; royalty and income tax rates; the timing of regulatory proceedings and approvals; and the timing of first commercial natural gas and the estimate of Vermilion’s share of the expected natural gas production from the Corrib field.
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: the ability of Vermilion to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally; the ability of Vermilion to market crude oil, natural gas liquids and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction and expansion and the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of Vermilion to obtain financing on acceptable terms; foreign currency exchange rates and interest rates; future crude oil, natural gas liquids and natural gas prices; and management’s expectations relating to the timing and results of exploration and 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. Financial outlooks are provided for the purpose of understanding Vermilion’s financial position and business objectives and the information may not be appropriate for other purposes. 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, natural gas liquids and natural gas; risks and uncertainties involving geology of crude oil, natural gas liquids and natural gas deposits; risks inherent in Vermilion’s marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life and estimates of resources and associated expenditures; the uncertainty of estimates and projections relating to production and associated expenditures; potential delays or changes in plans with respect to exploration or development projects; Vermilion’s ability to enter into or renew leases on acceptable terms; fluctuations in crude oil, natural gas liquids 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 exploration and development activities; 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.
All oil and natural gas reserve information contained in this document has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The actual oil and natural gas reserves and future production will be greater than or less than the estimates provided in this document. The estimated future net revenue from the production of oil and natural gas reserves does not represent the fair market value of these reserves.
Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel of oil equivalent. 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.
Financial data contained within this document are reported in Canadian dollars, unless otherwise stated.
|AECO||the daily average benchmark price for natural gas at the AECO ‘C’ hub in southeast Alberta|
|bbls/d||barrels per day|
|bcf||billion cubic feet|
|boe||barrel of oil equivalent, including: crude oil, natural gas liquids and natural gas (converted on the basis of one boe for|
|six mcf of natural gas)|
|boe/d||barrel of oil equivalent per day|
|mboe||thousand barrel of oil equivalent|
|mcf||thousand cubic feet|
|mcf/d||thousand cubic feet per day|
|mmboe||million barrel of oil equivalent|
|mmcf||million cubic feet|
|mmcf/d||million cubic feet per day|
|NGLs||natural gas liquids|
|PRRT||Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia|
|TTF||the day-ahead price for natural gas in the Netherlands, quoted in MWh of natural gas, at the Title Transfer Facility|
|Virtual Trading Point operated by Dutch TSO Gas Transport Services|
|WTI||West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma|
|Three Months Ended||Nine Months Ended|
|($M except as indicated)||Sep 30,||Jun 30,||Sep 30,||Sep 30,||Sep 30,|
|Petroleum and natural gas sales||344,688||387,684||327,185||1,113,555||948,727|
|Fund flows from operations (1)||197,898||216,076||165,645||619,337||503,866|
|Fund flows from operations ($/basic share)||1.85||2.05||1.63||5.90||5.01|
|Fund flows from operations ($/diluted share)||1.83||2.01||1.61||5.81||4.94|
|Net earnings ($/basic share)||0.50||0.51||0.67||2.01||2.25|
|Asset retirement obligations settled||4,677||2,381||2,738||9,709||6,496|
|Cash dividends ($/share)||0.645||0.645||0.600||1.935||1.800|
|% of fund flows from operations||35%||32%||37%||33%||36%|
|Net dividends (1)||48,480||49,561||41,649||145,163||127,875|
|% of fund flows from operations||24%||23%||25%||23%||25%|
|% of fund flows from operations||123%||87%||109%||109%||105%|
|% of fund flows from operations (excluding the Corrib project)||107%||73%||87%||97%||89%|
|Net debt (1)||1,243,438||1,168,998||700,286||1,243,438||700,286|
|Ratio of net debt to annualized fund flows from operations (1)||1.6||1.4||1.1||1.5||1.0|
|Crude oil (bbls/d)||29,147||30,184||26,664||28,890||25,640|
|Natural gas (mmcf/d)||110.52||114.08||77.41||109.33||81.97|
|Average realized prices|
|Crude oil and NGLs ($/bbl)||102.49||109.89||108.87||108.02||103.95|
|Natural gas ($/mcf)||5.74||6.19||6.00||6.60||6.68|
|Production mix (% of production)|
|% priced with reference to WTI||28%||30%||24%||27%||24%|
|% priced with reference to AECO||18%||18%||17%||18%||17%|
|% priced with reference to TTF||18%||18%||14%||18%||16%|
|% priced with reference to Dated Brent||36%||34%||45%||37%||43%|
|Netbacks ($/boe) (1)|
|Fund flows from operations netback||44.08||46.24||43.60||46.02||44.13|
|Average reference prices|
|WTI (US $/bbl)||97.17||102.99||105.82||99.61||98.14|
|Edmonton Sweet index (US $/bbl)||89.24||96.85||101.10||92.17||93.03|
|Dated Brent (US $/bbl)||101.85||109.63||110.37||106.57||108.45|
|Average foreign currency exchange rates|
|CDN $/US $||1.09||1.09||1.04||1.09||1.02|
|Share information (‘000s)|
|Shares outstanding – basic||106,921||106,620||101,787||106,921||101,787|
|Shares outstanding – diluted (1)||109,749||109,371||104,195||109,749||104,195|
|Weighted average shares outstanding – basic||106,768||105,577||101,613||104,891||100,634|
|Weighted average shares outstanding – diluted (1)||108,290||107,330||102,763||106,582||102,083|
|(1)||The above table includes additional GAAP and non-GAAP financial measures which may not be comparable to other companies. Please see the “ADDITIONAL AND NON-GAAP FINANCIAL MEASURES” section of Management’s Discussion and Analysis.|
MESSAGE TO SHAREHOLDERS
In 2014, we celebrated Vermilion’s 20th anniversary as a publicly traded company. It has been a demanding, but also a tremendously rewarding 20 years. During this time, we have witnessed significant change and encountered many challenges to the industry, and we are particularly proud of our demonstrated ability to effectively navigate those challenges to the benefit of our shareholders. Today’s environment is no different. The recent volatility in the capital markets, and more particularly in the energy sector (due to a rapid fall in commodity prices and near term price expectations), creates yet another opportunity for us to demonstrate the sustainability of our business model and the advantages of our diversified portfolio. Vermilion’s relative performance during this period has once again demonstrated the stable and defensive nature of our business, our strong positioning within the industry, and our shareholders’ continued confidence in our ability to prosper. Our balance sheet remains strong and we believe our longer-term focus, combined with our conservative approach and patience, will allow us to create further opportunity for our shareholders in the current environment.
Reflecting on Vermilion’s record, we are pleased that our previous efforts have resulted in a compound average total return including dividends, as of September 30, 2014, of 36.4% per annum since inception. We are also proud of the consistency of those returns. Over the last one, three, five, ten and 15 calendar-year periods, we have reliably delivered double-digit compound average total returns of 24.6%, 14.5%, 24.0%, 18.6% and 25.5%, respectively.
In spite of current commodity price weakness, we continue to believe that Vermilion is better situated for continued growth than at any other time in our history. With the consistent performance of our operations and our expansive and growing opportunity base, we remain confident that we are positioned to deliver continued strong operational and financial performance in the future, while also providing a reliable and growing dividend stream to our shareholders.
We are confident that the assets in our current portfolio contain significant opportunity for growth for years to come. In the current environment, we also find ourselves positioned to enhance growth in shareholder value and further diversify our opportunity base through acquisition activity in both North American and international markets.
In February 2014 we announced our entry into Germany. Germany has a long history of oil and gas development activity, low political risk and strong marketing fundamentals. The acquisition provides us with entry into this sizable market, in the form of free cash flow(1) generating, low-decline assets with near-term development inventory in addition to longer-term, low-permeability gas prospectivity. We believe that our conventional and unconventional expertise, coupled with new access to proprietary technical data, will position us for future development and expansion opportunities in both Germany and the greater European region.
In late April 2014 we announced the completion of our acquisition of Elkhorn Resources Inc., a private southeast Saskatchewan producer. The acquired assets consist of high netback, light oil production in the Northgate region of southeast Saskatchewan and include approximately 57,000 net acres of land (approximately 80% undeveloped), seven oil batteries, and preferential access to 50% or greater capacity at a solution gas facility that is currently under construction.
In addition, we recently completed an $11.1 million transaction which marks our first acquisition in the United States, representing a low-cost entry position in the prolific Powder River Basin of northeastern Wyoming. The transaction provides a promising tight oil development project, and we have put in place the human resources necessary to support future organic growth and acquisitions in the region. Through the transaction, we acquired approximately 68,000 acres of land (98% undeveloped) with current working interest production of approximately 200 bbls/d (100% oil), proved plus probable reserves estimated at 2.2(2) million boe (82% oil) and contingent resource of 10.0(2) million boe (82% oil). Transaction metrics, with no deduction for land value, equate to approximately $56,000 per boe/d and $20.98 per boe, including future development costs of approximately $35.3 million. The land base includes 53,000 net acres at a 70% operated working interest in a promising tight oil project in the Turner Sand at a depth of approximately 1,500 metres. The most recently completed well on this land block (70% working interest) is currently producing approximately 220 bbls/d of oil in its fourth month of production, from an approximately 1,100 metre hydraulically-fractured horizontal lateral.
Looking ahead we see continued opportunity for expansion. In North America, we are faced with an active asset market and we continue to see technology unlocking new opportunities for development. With Vermilion’s access to relatively low cost capital, our conservative balance sheet, and significant near-term free cash flow growth on the horizon (including from Corrib, which is expected to commence production in mid-2015), we are well positioned to compete and transact should suitable opportunities arise. While international asset markets remain substantially less liquid than in North America, we similarly find ourselves well-positioned for assets that do become available in our selective regions of interest.
The third quarter of 2014 marks another quarter of consistent operational execution for our Company. We continue to achieve strong results from our successful Mannville condensate-rich gas and Cardium light-oil development programs in Canada. Our strong Cardium results reflect continued improvements in completions design and better-than-forecasted production volumes on several of our two-mile extended reach horizontal Cardium wells. With improving efficiencies and productivity, we will require less capital than originally anticipated to meet our development objectives for the Cardium. As a result, we are able to increase our current focus on development of our extensive Mannville resource base which has generated very robust economics to-date. Looking forward, we anticipate our Mannville drilling activity will continue to increase in future years as we continue to develop our substantial inventory of highly economic prospects. During the quarter we also initiated a two-rig, 12-well Midale drilling program in southeast Saskatchewan. We have currently identified approximately 190 net potential drilling locations targeting the Midale, Frobisher, Bakken, and Three Forks/Torquay formations on our southeast Saskatchewan lands. In addition, we have expanded our southeast Saskatchewan land base during the quarter through the purchase at Crown land sales of approximately 15,000 net acres of undeveloped land to the northwest of our existing lands, adding an estimated 60 new development locations.
The appraisal of our position in the Duvernay condensate-rich resource play continues. To-date, we have amassed 317 net sections at the relatively low cost of $76 million ($375/acre). Our position comprises three largely contiguous blocks in the Edson, West Pembina and Niton areas. To date, we have drilled three vertical stratigraphic test wells, and have completed drilling operations on two horizontal appraisal wells. The first horizontal appraisal well drilled (1,180 meters horizontal length) is located in the downdip part of our Edson block where condensate yields are expected to be lower than the average of our overall land position. We selected this location because of its proximity to one of our vertical stratigraphic test wells, allowing us to conduct microseismic monitoring in the stratigraphic test well when we frac the horizontal well (expected to occur during the fourth quarter of 2014). Our second horizontal appraisal well (1,280 meters horizontal length), which we operate at a 34.8% working interest, is located along a shared lease-line in the Pembina block to allow partner participation. Completion activities on the Pembina well, including microseismic monitoring, were completed during the third quarter. The well was brought on production in October 2014 and has produced for 16 days. Raw gas rate has averaged 2.2 mmcf/d (expected sales gas rate of 1.8 mmcf/d after liquids shrink and plant fuel) with an estimated hydrocarbon liquids rate of approximately 180 bbls/d (approximately 60% pentanes plus). The well is producing at restricted rates using a 12/64 inch downhole choke to generate an estimated flowing bottomhole pressure of 4,200 psi (approximately 55% drawdown). Our Edson Duvernay horizontal appraisal well (100% working interest) is expected to be brought on production late in Q4 2014.
Our development-phase target for Duvernay well costs (including drill, complete, equip and tie-in) is $12 to $15 million. We believe that development-phase savings will be achievable through learning-curve improvements, lower lease construction costs, economies of scale in procurement and lower evaluation expenditures (such as the elimination of microseismic monitoring). We anticipate that the production results and interpreted fracture geometries from the microseismic data on these appraisal wells will assist us in optimizing completions on future development-phase horizontal wells. We are confident that we will be able to project the appraisal well results to higher condensate yield locations as we move to the northeast in our acreage position, which encompasses the entire breadth of the condensate-rich window. Our Duvernay rights generally underlie our Cardium oil and Mannville condensate-rich gas rights, which creates the potential for infrastructure, operational, and timing advantages if we progress to full development of the Duvernay condensate-rich resource play. In combination, our Cardium, Mannville, and Duvernay positions provide us with exploration and development opportunities in our core Canadian operating region that have the potential to deliver strong production and reserve growth into the next decade.
We were also active in Europe during the third quarter of 2014 with ongoing drilling operations in both France and the Netherlands. In France, we completed our five-well Champotran drilling campaign in the Paris Basin during the quarter. The five wells were brought on production at various times during the third quarter and are producing at oil rates averaging approximately 200 bbls/d per well. The final well of our 2014 drilling campaign in France (Tamaris in the Aquitaine Basin) is anticipated to be drilled and completed during the fourth quarter. During the third quarter of 2014, we furthered preparations for the phased transfer of our shut-in Vic Bilh natural gas production from the Lacq gas processing facility where it was previously handled to a new third party facility. Delays in receiving required permit transfers have pushed our original plans to bring approximately 850 mcf/d of solution gas back on-stream from the third quarter of 2014 to early 2015. The remainder of the shut-in gas production, approximately 3,400 mcf/d of gas cap gas, is expected to be back on production in early 2016.
In the Netherlands, we drilled the Diever-02 exploratory well (45% working interest) during the third quarter in the Drenthe IIIb concession on lands acquired in October 2013. This well primarily targeted the Rotliegend Group (Permian sandstones) and encountered two well-developed gas bearing intervals (Akkrum and Slochteren) with a net pay thickness of approximately 36 metres. A three-hour clean-up test was conducted on the Slochteren formation which delivered 25.7 mmcf/d of gas on a 40/64 inch choke with 2,615 psi flowing tubing pressure with no indications of pressure drop during the test(3). The flow rate was limited by the 3.5 inch diameter of the tubing and the capacity of the test equipment. The well is expected to be tied-in with production from the Slochteren formation in Q4 2015 at an estimated rate of approximately 1,000 boe/d, net to Vermilion. The Akkrum formation is anticipated to be perforated at a later date once the Slochteren formation has been fully produced.
Subsequent to the end of the third quarter, we drilled a gas discovery well in the Netherlands at the Langezwaag-02 location (42.3% working interest) in the Gorredijk concession. This extended reach well recorded significant gas shows in two metres of Vlieland Sandstone and 21 metres of Zechstein-2 Carbonate. Open hole logs could not be run in the highly deviated well. The Langezwaag-02 well was first flow tested from the Zechstein-2 Carbonate at 12.4 mmcf/d through a 48/64 inch choke at a flowing tubing pressure of approximately 1,300 psi. A second flow test in the Vlieland Sandstone yielded rates of 2.7 mmcf/d through a 32/64 inch choke at a flowing tubing pressure of approximately 960 psi. The remaining well of the 2014 drilling campaign is expected to be drilled and completed during the fourth quarter of 2014.
Our newly acquired position in Germany enables us to participate, on a non-operated basis, in the exploration, development, production and transportation of natural gas from four gas producing fields across 11 production licenses. The assets include both exploration and production licenses that comprise a total of 207,000 gross acres, of which 85% is in the exploration license. During the first quarter of 2014, we participated in the drilling of the Deblinghausen Z7a development well (25% working interest) in Germany. The well logged 81 metres of net pay in the Zechstein Carbonate, and was tested in late September 2014 for a period of 17 days. During production testing, the well produced at an average rate of 10.2 mmcf/d at a flowing tubing pressure of 1,840 psi(3). Subsequent to the end of the quarter, this well was placed on production at an initial gross production rate of 16.5 mmcf/d of raw gas at a flowing tubing pressure of approximately 1,300 psi.
Our Corrib project in Ireland has continued to progress on schedule following the completion of tunnel boring operations in May 2014. Project operator Shell Exploration & Production Ireland Ltd. (SEPIL) successfully completed offshore workover and pipeline operations during the third quarter and the wells are ready for operation. SEPIL also significantly advanced tunnel outfitting, which is now estimated to be approximately 95% complete following installation of flow and umbilical lines in the 4.9 km tunnel. Remaining activities include final cable installation, hydro-testing and grouting, as well as commissioning of the gas processing facility and finalization of operating permits. We anticipate first gas from Corrib in approximately mid-2015, with peak production estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.
In Australia, we remain focused on completing preparations for a two-well drilling program in 2015, as well as re-lifing and maintenance projects on our two platforms. In order to provide long-term certainty to purchasers of the high-value oil from Wandoo, our current plan is to maintain field-total production levels within our prior guidance of between 6,000 bbls/d and 8,000 bbls/d. We anticipate maintaining these production levels in Australia for the foreseeable future with drilling programs approximately every two years. Our Australian oil currently garners a premium of up to US$7.00 to the Dated Brent index and incurs no transportation cost as production is sold directly at the platform.
Our operations continue to perform strongly, generating organic production growth in a capital-efficient manner. We are moving up our 2014 average annual production guidance from the previous range of 48,500-49,500 boe/d to a range of 49,000-49,500 boe/d, and expect full year production to be near the upper end of this refined range. Assuming commodity prices remain near current levels for the remainder of 2014, we continue to anticipate that we can fully fund our net dividends(1) and development capital expenditures (excluding capital investment at Corrib) with fund flows from operations(1) during 2014.
We believe we remain positioned to deliver strong operational and financial performance over the next several years. We continue to target annual organic production growth of 5% to 7% while providing reliable and growing dividends. Near term production and fund flows from operations growth is expected to be driven by continued Cardium and Mannville development in Canada, oil development activities in France, and high-netback natural gas drilling in the Netherlands. A significant increment of production, fund flows from operations and free cash flow growth is expected from Corrib beginning in approximately mid-2015 with the first full year of production from the project in 2016. Our Australian and German business units are expected to provide relatively steady production as well as strong free cash flow.
In keeping with our strategy of pursuing long-term growth in our three core regions in North America, Europe and Australia, we have established two new offices led by locally-experienced management with strong track records of success. As the operating headquarters of our new U.S. Business Unit, we have opened an office in Denver, Colorado. Daniel Anderson has joined Vermilion as Managing Director for our U.S. subsidiary. Mr. Anderson has 30 years of experience in the upstream and midstream energy sectors throughout the U.S. He was formerly President of Baytex Energy USA, with previous management and technical roles at Berry Petroleum, Williams Companies, Santa Fe Snyder and ConocoPhillips. Mr. Anderson has a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines. Further strengthening our capabilities for growth in the U.S., Timothy Morris has joined Vermilion as Director of U.S. Business Development. Mr. Morris has more than 30 years of experience in land management and business development in the U.S. He was formerly Vice President of U.S. Business Development for Baytex Energy Corporation, with previous management and land roles at Berco Resources, Santa Fe Snyder and Sohio. Mr. Morris has a Bachelor of Science degree in Minerals Land Management from the University of Colorado and is a Certified Petroleum Landman.
As the operating headquarters of our German Business Unit, we have established an office in Berlin. Albrecht Möhring has been appointed Managing Director of Vermilion’s German Business Unit. Mr. Möhring brings 30 years of diverse experience in the energy business to Vermilion. He was formerly Managing Director for Germany with GDF Suez, with previous roles as Group Exploration and Operations Manager in Paris for GDF Suez and in management with Preussag Energie in Germany (the predecessor of GDF Suez in Germany). Mr. Möhring has a Master of Science degree in Petroleum Engineering from the University of Clausthal.
The management and directors of Vermilion continue to hold approximately 6% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders. Continuing to be acknowledged for excellence in our business practices, Vermilion was recognized for the fifth consecutive year by the Great Place to Work® Institute in both Canada and France in 2014. In Canada, Vermilion was ranked 5th Best Workplace in its category for 2014. More than 300 Canadian companies participated in the survey and Vermilion was the only energy company in Canada to be recognized as a Best Workplace. In France, Vermilion received a special award for corporate social responsibility and was ranked 13th Best Workplace in its category for 2014. Vermilion’s Netherlands business unit became eligible to participate in the competition for the first time in 2014 and was ranked 10th Best Workplace in its category, the highest score of any energy company in the survey. In October 2014 Vermilion was ranked second out of 13 in our peer group by the Carbon Disclosure Project (CDP) for our disclosure in 2014, our inaugural year of participation with Vermilion scoring 87 out of 100 (10 points higher than any peer group company achieved in its inaugural year of participation).
|(1)||The above discussion includes additional GAAP and non-GAAP measures which may not be comparable to other companies. Please see the “ADDITIONAL AND NON-GAAP FINANCIAL MEASURES” section of Management’s Discussion and Analysis.|
|(2)||Estimated proved plus probable reserves and contingent resources attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd. in a report dated October 28, 2014, with an effective date of July 1, 2014, using the GLJ (2014-07) price forecast.|
|(3)||Test results are not necessarily indicative of long-term production performance or of ultimate recovery.|