Vermilion Energy Inc. Announces 2017 Year-End Summary Reserves and Resource Information

CALGARY, March 1, 2018 /CNW/ – Vermilion Energy Inc. (“Vermilion”, the “Company”, “We” or “Our”) (TSX, NYSE: VET) is pleased to announce summary 2017 year-end reserves and resource information.  The estimates of reserves and resources and other oil and gas information contained in this news release have been estimated by GLJ Petroleum Consultants Ltd. (“GLJ”) effective as at December 31, 2017 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, 2017, to be filed on March 1, 2018 and available on SEDAR at www.sedar.com and on the SEC’s EDGAR system at www.sec.gov/edgar.shtml.

HIGHLIGHTS

• Total proved (“1P”) reserves increased by 0.5% to 176.6 mmboe, while total proved plus probable (“2P”) reserves increased 3% to 298.5 mmboe. We replaced 103% and 134% of production at the 1P and 2P levels respectively in 2017.
• Finding and Development (“F&D”)⁽²⁾ and Finding, Development and Acquisition (“FD&A”)⁽²⁾ costs, including Future Development Capital (“FDC”) for 2017 on a 2P basis increased to $10.57/boe and $11.24/boe, compared to $5.57/boe and $6.62/boe in 2016, respectively. Our three-year F&D and FD&A costs, including FDC, on a 2P basis were $8.23/boe and $8.87/boe, respectively. The largest driver of the increase in F&D cost was the strengthening of the Euro relative to the Canadian dollar in GLJ’s foreign exchange rate forecast as compared to the previous year, which increased FDC for our European properties. Operating Recycle Ratio⁽³⁾ (including FDC) was 2.8x in 2017.
• Proved Developed Producing (“PDP”) reserves increased by 1.3% to 123.8 mmboe at an average F&D cost (including FDC) of $12.41/boe resulting in a PDP Operating Recycle Ratio⁽³⁾ (including FDC) of 2.4x. PDP reserves represent 70% of 1P reserves.
• At year-end 2017, 2P reserves were comprised of 29% Brent-based light crude, 15% North American-based light crude, 12% natural gas liquids, 19% European natural gas and 25% North American natural gas.
• We continued to build our strong resource base in our West Pembina area in Alberta. We added 29 (23.9 net) 2P locations in the condensate-rich portion of the Mannville gas play in West Pembina at an average reserves addition per well of approximately 520 mboe. The West Pembina-Mannville reserves are Vermilion’s largest resource base, representing over 40% of total Canadian 2P reserves at December 31, 2017.
• In the Ferrier area of Alberta we added nine (7.1 net) 2P locations in the liquids-rich Mannville gas play at an average reserve addition per well of approximately 1,100 mboe.
• Our independent GLJ 2017 Resource Assessment⁽⁴⁾ indicates risked low, best, and high estimates for contingent resources in the Development Pending category of 107.3⁽⁴⁾ mmboe, 176.7⁽⁴⁾ mmboe, and 253.6⁽⁴⁾mmboe, respectively. The GLJ 2017 Resource Assessment also indicates risked low, best, and high estimates for contingent resources in the Development Unclarified category of 7.5⁽⁴⁾ mmboe, 32.8⁽⁴⁾ mmboe, and 46.1⁽⁴⁾mmboe, respectively. Over 80% of our risked contingent resources reside in the Development Pending category. Prospective resources were assessed at risked low, best and high estimates of 51.5⁽⁴⁾ mmboe, 153.4⁽⁴⁾mmboe, and 260.4⁽⁴⁾ mmboe. Our contingent and prospective resource bases remain a source of reserve additions, with 20.5 mmboe of contingent resources and 1.7 mmboe of prospective resources converted to 2P reserves during 2017.

 

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; 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, 2017 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 1, 2018with an effective date of December 31, 2017 (the “GLJ 2017 Reserves Evaluation”).  The GLJ 2017 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, 2017 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 2017 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 2017 Reserve Evaluation.  There is no assurance that the future price and cost assumptions used in the GLJ 2017 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 tables above are provided by GLJ.  For 2017, the price of crude oil in the United States is based on WTI. The benchmark price for Canadian crude oil is Edmonton Par and Canadian natural gas is priced against AECO.  The benchmark price for Australia, France and Germany crude oil is Dated Brent.  The price of our natural gas in Ireland is based on the NBP index.  The price of Vermilion’s natural gas in the Netherlands and Germany is based on the TTF day/month-ahead index, as determined on the Title Transfer Facility Virtual Trading Point.   For the year ended December 31, 2017, the average realized sales prices before hedging were $57.64 per bbl (United States) for WTI, $51.36 per bbl for Canadian-based crude oil, condensate and NGLs and $2.34 per Mcf for Canadian natural gas, $73.99 per bbl (Australia), $67.08 per bbl (France) for Brent-based crude oil, $7.19 per Mcf (Ireland), $7.18 per Mcf (Netherlands), and $6.38 per Mcf (Germany).

The following table summarizes the capital expenditures made by Vermilion on oil and gas properties for the year ended December 31, 2017:

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 2017 production of 72,821 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⁾

Notes:

 

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

Notes:

 

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

Notes:

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, 2017 compared to such reserves as at December 31, 2016.

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⁾

Note:

 

Vermilion expects to source its capital expenditure requirements from internally generated cash flow and, as appropriate, from Vermilion’s existing credit facility or 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.

APPENDIX A
CONTINGENT RESOURCES

Summary information regarding contingent resources and net present value of future net revenues from contingent resources are set forth below and are derived, in each case, from the GLJ Resources Assessment. The GLJ Resources Assessment was prepared in accordance with COGEH and NI-51-101 by GLJ, an independent qualified reserve evaluator. All contingent resources evaluated in the GLJ Resources Assessment were deemed economic at the effective date of December 31, 2017. Contingent resources are in addition to reserves estimated in the GLJ Report.

A range of contingent resources estimates (low, best and high) were prepared by GLJ.  See notes 6 to 8 of the tables below for a description of low estimate, best estimate and high estimate.

The GLJ Resources Assessment estimated gross risked contingent resources with a project maturity subclass of “Development Pending” of  107.3 million boe (low estimate) to 253.6 million boe (high estimate), with a best estimate of 176.7 million boe. Contingent resources are in addition to reserves estimated in the GLJ Report.

The GLJ Resources Assessment estimated gross risked contingent resources with a project maturity subclass of “Development Unclarified” of 7.5 million boe (low estimate) to 46.1 million boe (high estimate), with a best estimate of 32.8 million boe.

An estimate of risked net present value of future net revenue of contingent resources is preliminary in nature and is provided to assist the reader in reaching an opinion on the merit and likelihood of the company proceeding with the required investment. It includes contingent resources that are considered too uncertain with respect to the chance of development to be classified as reserves. There is uncertainty that the risked net present value of future net revenue will be realized.

Table 10: Summary of Risked Oil and Gas Contingent Resources as at December 31, 2017 ^{(1) (2)} – Forecast Prices and Costs ^{(3) (4)}

 

 

Table 11: Summary of Risked Net Present Value of Future Net Revenues as at December 31, 2017 – Forecast Prices and Costs ⁽³⁾

 

 

Notes:

 

PROSPECTIVE RESOURCES

Summary information regarding prospective resources and net present value of future net revenues from prospective resources are set forth below and are derived, in each case, from the GLJ Resources Assessment. The GLJ Resources Assessment was prepared in accordance with COGEH and NI-51-101 by GLJ, an independent qualified reserve evaluator. All prospective resources evaluated in the GLJ Resources Assessment were deemed economic at the effective date of December 31, 2017. Prospective resources are in addition to reserves estimated in the GLJ Report.

A range of prospective resources estimates (low, best and high) were prepared by GLJ. See notes 6 to 8 of the tables below for a description of low estimate, best estimate and high estimate.

The GLJ Resources Assessment estimated gross risked prospective resources of 51.5 million boe (low estimate) to 260.4 million boe (high estimate), with a best estimate of 153.4 million boe.

An estimate of risked net present value of future net revenue of prospective resources is preliminary in nature and is provided to assist the reader in reaching an opinion on the merit and likelihood of the company proceeding with the required investment. It includes prospective resources that are considered too uncertain with respect to the chance of development and chance of discovery to be classified as reserves. There is uncertainty that the risked net present value of future net revenue will be realized.

 

Summary of Risked Oil and Gas Prospective Resources as at December 31, 2017⁽¹⁾⁽²⁾ – Forecast Prices and Costs⁽³⁾⁽⁴⁾

 

 

Summary of Risked Net Present Value of Future Net Revenues as at December 31, 2017 – Forecast Prices and Costs⁽³⁾

 

Notes:

 

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 currently pays a monthly dividend of Canadian $0.215 per share, which provides a current yield of approximately 6.0%.

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 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 of natural gas 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.

Netbacks and Operating Recycle Ratio are measures that do not have standardized meanings prescribed by International Financial Reporting Standards (“IFRS”) and therefore may not be comparable with the calculations of similar measures for other entities.  “Operating Recycle Ratio” is a measure of capital efficiency calculated by dividing the Operating Netback by the cost of adding reserves (F&D cost). “Netbacks” are per boe and per Mcf measures used in operational and capital allocation decisions.  “Operating Netback” is calculated as sales less royalties, operating expense, transportation costs, PRRT and realized hedging gains and losses presented on a per unit basis.  Management assesses Operating Netback as a measure of the profitability and efficiency of our field operations.  F&D (finding and development) costs are used as a measure of capital efficiency and are calculated by dividing the applicable capital expenditures for the period, including the change in undiscounted future development capital, by the change in the reserves, incorporating revisions and production, for the same period.

SOURCE Vermilion Energy Inc.