Vermilion Energy Inc. Announces 2014 Year-End Summary Reserves and Resource Information

CALGARY, Feb. 27, 2015 /CNW/ – Vermilion Energy Inc. (“Vermilion”, the “Company”, “We” or “Our”) (TSX, NYSE: VET) is pleased to announce summary 2014 year-end reserves and resource information.  The estimates of reserves and resources and other oil and gas information contained in this news release has been estimated by GLJ Petroleum Consultants Ltd. (“GLJ”) and prepared in accordance with National Instrument 51-101 “Standards of Disclosure for Oil and Gas Activities” of the Canadian Securities Administrators (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGEH”). For additional information about Vermilion, including Vermilion’s statement of reserves data and other information in Form 51-101F1, report on reserves data by independent qualified reserves evaluator or auditor in Form 51-101F2 and report of management and directors on oil and gas disclosure in Form 51-101F3, please review the Company’s Annual Information Form for the year ended December 31, 2014, to be filed on March 6, 2015 and available on SEDAR at www.sedar.com and on the SEC’s EDGAR system at www.sec.gov.

HIGHLIGHTS

• Total proved (“1P”) reserves increased 17% to 151.5 mmboe⁽¹⁾, while total proved plus probable (“2P”) reserves increased 24% to 246.9 mmboe⁽¹⁾. This represents year-over-year 1P and 2P per share reserves growth of 12% and 18%, respectively.
• Finding and Development (“F&D”) and Finding, Development and Acquisition (“FD&A”) costs, including Future Development Capital (“FDC”) for 2014 on a 2P basis were $17.37/boe and $22.38/boe, resulting in Recycle Ratios of 3.2 and 2.5, respectively.  Similarly, our three-year F&D and FD&A, including FDC, on a 2P basis were $19.26/boe and $20.83/boe, respectively.
• In 2014, we added 66.5 mmboe of 2P reserves with 37.7 mmboe (57%) of additions coming from exploration and development (“E&D”) activities and 28.8 mmboe (43%) of additions through acquisitions.  This represents production replacement at the 2P level of 208% through E&D related activities and 367% including acquisitions.  At a 1P level, we replaced 125% and 225% of 2014 production, respectively.
• Our independent GLJ 2014 Resource Assessment⁽¹⁾ indicates low, best, and high estimates for contingent resources of 103.1⁽¹⁾ mmboe, 293.4⁽¹⁾ mmboe, and 408.0⁽¹⁾ mmboe, an increase of 39%, 26% and 16%, respectively, compared to our GLJ 2013 Resource Assessment⁽²⁾.  Prospective resources were assessed at low, best and high estimates of 308.3⁽¹⁾ mmboe, 601.6⁽¹⁾ mmboe, and 900.3⁽¹⁾ mmboe, an increase of 419%, 21%, and 10%, respectively versus our GLJ 2013 Resource Assessment.  Importantly, the GLJ 2014 Resource Assessment reflects a significant increase in even the most conservative “Low Estimate” for both contingent and prospective resources in Canada, as well as incremental increases across our European asset base.
• At year-end 2014, 2P reserves were comprised of 30% Brent-based light crude, 18% Canadian-based light crude, 10% natural gas liquids, 20% European natural gas and 22% Canadian natural gas.
• Reserve life index for 2P reserves increased to 13.6 years for year-end 2014 reserves based on annualized Q4 2014 production, compared to 13.3 years at year-end 2013. Year-end 2014 reserve life index for 1P reserves was 8.4 years, as compared to 8.6 years at year-end 2013.
• Following on our successful 2013 program, our 2014 drilling activity resulted in an additional 22 (16.8 net) undeveloped wells booked at the 2P level in the Mannville liquids-rich gas play in Alberta, with average reserves of approximately 790 mboe/well.
• The successful drilling of Deblinghausen Z7 well in Germany added 1.3 mmboe of 2P reserves for Vermilion’s 25% working interest.
• Our Diever-2 discovery in the Netherlands added 1.3 mmboe of 2P reserves for Vermilion’s 33.1% working interest (projected average interest over well life).

DISCLAIMER

Certain statements included or incorporated by reference in this news release 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 news release may include, but are not limited to:

• capital expenditures;
• business strategies and objectives;
• 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 of future dividends;
• royalty and income tax rates;
• the timing of regulatory proceedings and approvals;
• the timing of first commercial gas from the Corrib field; 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 the Company to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally;
• the ability of the Company 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 the Company 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 development activities.

Although the Company 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 the Company can give no assurance that such expectations will prove to be correct.  Financial outlooks are provided for the purpose of understanding the Company’s financial strength 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 the Company 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 the Company’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, costs and expenses;
• potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
• the Company’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 the Company to add production and reserves through exploration and development 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 the Company; and
• other risks and uncertainties described elsewhere in the annual information form of the Company for the year ended December 31, 2014 or in the Company’s other filings with Canadian securities authorities.

The forward-looking statements or information contained in this news release are made as of the date hereof and the Company 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.

RESERVES, FUTURE NET REVENUE AND OTHER OIL AND GAS INFORMATION

The following is a summary of the oil and natural gas reserves and the value of future net revenue of Vermilion as evaluated by GLJ, independent petroleum engineering consultants in Calgary in a report dated February 6, 2015 with an effective date of December 31, 2014 (the “GLJ 2014 Reserves Evaluation”).  The GLJ 2014 Reserves Evaluation was prepared in accordance with National Instrument 51-101 and COGEH.

Reserves and other oil and gas information in this news release is effective December 31, 2014 unless otherwise stated.

All evaluations of future net production revenue set forth in the tables below are stated after overriding and lessor royalties, Crown royalties, freehold royalties, mineral taxes, direct lifting costs, normal allocated overhead and future capital investments, including abandonment and reclamation obligations.  Future net production revenues estimated by the GLJ 2014 Reserves Evaluation do not represent the fair market value of the reserves.  Other assumptions relating to the costs, prices for future production and other matters are included in the GLJ 2014 Reserve Evaluation.  There is no assurance that the future price and cost assumptions used in the GLJ 2014 Reserves Evaluation will prove accurate and variances could be material.

Reserves for Australia, Canada, France, Germany, Ireland, the Netherlands and the United States are established using deterministic methodology.  Total proved reserves are established at the 90 percent probability (P90) level.  There is a 90 percent probability that the actual reserves recovered will be equal to or greater than the P90 reserves.  Total proved plus probable reserves are established at the 50 percent probability (P50) level.  There is a 50 percent probability that the actual reserves recovered will be equal to or greater than the P50 reserves.

Estimates of reserves have been made assuming that development of each property, in respect of which estimates have been made, will occur without regard to the availability of funding required for that development.

With respect to finding and development costs, the aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.

Pricing used in the forecast price estimates is set forth in the table below and referenced in the notes to subsequent tables.

Table 1: Forecast Prices used in Estimates ⁽¹⁾

All forecast prices in the table above are provided by GLJ.  For 2014, the price of Vermilion’s natural gas in the Netherlands was based on the TTF day-ahead index, as determined on the Title Transfer Facility Virtual Trading Point operated by Dutch TSO Gas Transport Services, plus various fees. GasTerra, a state owned entity purchases all natural gas produced by Vermilion in the Netherlands.  The price of Vermilion’s natural gas in Germany is based on the TTF month-ahead index, as determined on the Title Transfer Facility Virtual Trading Point operated by Dutch TSO Gas Transport Services, plus various fees.  The benchmark price for Australia and France crude oil was Dated Brent. The benchmark price for Canadian crude oil was Edmonton Par and Canadian natural gas was priced against AECO.  For the year ended December 31, 2014, the average realized sales prices before hedging were $113.80 per bbl (Australia), $8.70 per Mcf (Netherlands), $7.67 per Mcf (Germany), $105.43 per bbl (France) for Brent-based crude oil, $74.08 per bbl (United States) for WTI, $88.98 per bbl for Canadian-based crude oil and NGLs and $4.53 per Mcf for Canadian natural gas.

The following table summarizes the capital expenditures made by Vermilion on oil and natural gas properties for the year ended December 31, 2014:

Table 2: Capital Costs Incurred

The following table sets forth the reserve life index based on total proved and proved plus probable reserve and fourth quarter 2014 production of 49,571 boe/d.

Table 3: Reserve Life Index

The following tables provide reserves data and a breakdown of future net revenue by component and production group using forecast prices and costs.  For Canada, the tables following include Alberta gas cost allowance.

The following tables may not total due to rounding.

Table 4: Oil and Gas Reserves – Based on Forecast Prices and Costs ⁽¹⁾

Table 5: Net Present Values of Future Net Revenue – Based on Forecast Prices and Costs ⁽¹⁾

Table 6: Total Future Net Revenue (Undiscounted) Based on Forecast Prices and Costs ⁽¹⁾

Table 7: Future Net Revenue by Production Group Based on Forecast Prices and Costs ⁽¹⁾

Reconciliations of Changes in Reserves

The following tables set forth a reconciliation of the changes in Vermilion’s gross light and medium crude oil, heavy oil and associated and non-associated gas (combined) reserves as at December 31, 2014 compared to such reserves as at December 31, 2013.

Table 8: Reconciliation of Company Gross Reserves by Principal Product Type – Based on Forecast Prices and Costs ⁽³⁾

The table below sets out the future development costs deducted in the estimation of future net revenue attributable to total proved reserves and total proved plus probable reserves (using forecast prices and costs).

Table 9: Future Development Costs⁽¹⁾

Vermilion expects to source its capital expenditure requirements from internally generated cash flow and, as appropriate, from Vermilion’s existing credit facility, equity or debt financing.  It is anticipated that costs of funding the future development costs will not impact development of its properties or Vermilion’s reserves or future net revenue.

CONTINGENT AND PROSPECTIVE RESOURCES

Vermilion retained GLJ to conduct an independent resource evaluation to assess contingent and prospective resources across all of the Company’s key operating regions with an effective date of December 31, 2014 (the “GLJ 2014 Resources Assessment”).

All contingent and prospective resources evaluated in the GLJ 2014 Resources Assessment were deemed economic at the effective date of December 31, 2014.

The estimates of volumes of, and the net present value of the future net revenue attributable to, contingent resources and prospective resources in this news release are derived from the GLJ 2014 Resources Assessment.  The GLJ 2014 Resources Assessment was prepared in accordance with COGEH and NI 51-101 by GLJ, an independent qualified reserve evaluator.

A range of contingent and prospective resources estimates (low, best and high) were prepared by GLJ.  See notes 5 to 8 of following Table 11 in this section for a description of low estimate, best estimate and high estimate.

Contingent Resources

“Contingent resources” are not, and should not be confused with, petroleum and natural gas reserves. “Contingent resources” are defined in COGEH as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resource the estimated discovered recoverable quantities associated with a project in the early evaluation stage.

The primary contingencies which currently prevent the classification of Vermilion’s contingent resource as reserves include but are not limited to:

• preparation of firm development plans, including determination of the specific scope and timing of projects;
• project sanction;
• access to capital markets;
• shareholder and regulatory approvals;
• access to required services and field development infrastructure;
• oil and natural gas prices in Canada and internationally in jurisdictions in which Vermilion operates;
• demonstration of economic viability;
• future drilling program and testing results;
• further reservoir delineation and studies;
• facility design work;
• limitations to development based on adverse topography or other surface restrictions; and
• the uncertainty regarding marketing and transportation of petroleum from development areas.

There is no certainty that it will be commercially viable to produce any portion of the contingent resources or that Vermilion will produce any portion of the volumes currently classified as contingent resources. The estimates of contingent resources involve implied assessment, based on certain estimates and assumptions, that the resources described exists in the quantities predicted or estimated and that the resources can be profitably produced in the future.  The net present value of the future net revenue from the contingent resources does not necessarily represent the fair market value of the contingent resources.  Actual contingent resources (and any volumes that may be reclassified as reserves) and future production therefrom may be greater than or less than the estimates provided herein.

Prospective Resources

Prospective resources are not, and should not be confused with, petroleum and natural gas reserves. “Prospective resources” are defined in COGEH as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

There is no certainty that any portion of the prospective resources will be discovered.  If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources or that Vermilion will produce any portion of the volumes currently classified as prospective resources. The estimates of prospective resources involve implied assessment, based on certain estimates and assumptions, that the resources described exists in the quantities predicted or estimated and that the resources can be profitably produced in the future. The net present value of the future net revenue from the prospective resources does not necessarily represent the fair market value of the prospective resources. The recovery and resources estimates provided herein are estimates only.  Actual prospective resources (and any volumes that may be reclassified as reserves or contingent resources) and future production from such prospective resources may be greater than or less than the estimates provided herein.

Summary information regarding contingent and prospective resources and net present values of future net revenues from contingent and prospective resources are set forth below

Table 10: Company Gross and Net Contingent and Prospective Resources as at December 31, 2014 ^{(1) (2)} – Forecast Prices and Costs ^{(3) (4)}

Table 11: Summary of Net Present Value of Future Net Revenues as at December 31, 2014 – Forecast Prices and Costs ⁽³⁾