Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2023 and Accelerated Return of Capital
- Strong financial results for Vermilion Energy Inc. in 2023 with significant reductions in net debt and increased shareholder returns.
- Q4 2023 FFO was $372 million, with $229 million in FCF and a 50% reduction in net debt.
- Vermilion returned $160 million to shareholders and achieved average production of 87,597 boe/d in Q4 2023.
- Year-end 2023 FFO was $1.1 billion, with net debt decreasing by $266 million to $1.1 billion.
- The company reported a 2023 net loss of $238 million, driven by non-cash impairment charges.
- Vermilion plans to increase capital return targets and accelerate share buybacks.
- None.
Insights
The financial results of Vermilion Energy Inc. for the year ended December 31, 2023, particularly the fund flows from operations (FFO) and free cash flow (FCF), indicate a positive financial performance with a significant reduction in net debt. The company's achievement of a net debt-to-FFO ratio of under 1.0 times is a strong indicator of its improved leverage position. This ratio is a critical measure of a company's ability to service its debt and is often used by investors to gauge financial health. The 50% reduction in net debt from the 2020 peak and the lowest debt level in a decade is a testament to the company's effective debt management and operational efficiency.
Furthermore, the increase in shareholder returns through dividends and share buybacks reflects confidence in the company's financial stability and commitment to delivering shareholder value. The 20% increase in the quarterly dividend and the decision to manage a capital return target of 50% of excess FCF suggest that Vermilion is prioritizing the distribution of its financial surplus to shareholders, which could potentially lead to an optimistic outlook among investors and a positive impact on the stock price.
Vermilion's operational highlights, such as the average production of 87,597 boe/d in Q4 2023 and the year-end production averaging 83,994 boe/d, demonstrate the company's ability to maintain stable production levels. The production figures, which met the midpoint of Vermilion's annual guidance, suggest operational resilience and efficiency despite challenges such as wildfire-related downtime in Canada and maintenance downtime in Australia. The diversification of Vermilion's portfolio, with assets spread across North America and internationally, appears to mitigate regional operational risks and contribute to the company's robust performance.
The planned development activities, such as the construction of the Mica Montney battery and exploration in Germany and Croatia, signal Vermilion's strategic focus on growth and expansion. The successful execution of these projects could enhance Vermilion's production capacity and reserves, potentially leading to long-term revenue growth. However, investors should be mindful of the inherent risks associated with exploration and development, such as project delays, cost overruns and the volatility of commodity prices, which could impact future financial performance.
The energy sector is highly sensitive to changes in commodity prices, as evidenced by the fluctuations in average realized prices for crude oil, condensate and natural gas reported by Vermilion. The company's production mix and pricing references to WTI, Dated Brent, AECO, TTF and NBP provide a diversified price exposure, which can be advantageous in managing market volatility. Investors should note that the operating netback, an important measure of profitability per barrel of oil equivalent, stands at $57.48/boe for Q4 2023. This figure, compared to the annual operating netback of $49.22/boe, indicates a favorable cost structure and the potential for strong margins when commodity prices are high.
It is also noteworthy that Vermilion's strategy includes high-grading its asset base, focusing on low emission, premium-priced European natural gas. This approach aligns with the global shift towards cleaner energy sources and could position the company favorably in markets with increasing demand for natural gas. Investors may view this as a forward-looking strategy that aligns with environmental, social and governance (ESG) trends, which are becoming increasingly important in investment decisions.
The audited financial statements, management discussion and analysis and annual information form for the year ended December 31, 2023 will be available on the System for Electronic Document Analysis and Retrieval Plus ("SEDAR+") at www.sedarplus.ca, on EDGAR at www.sec.gov/edgar.shtml, and on Vermilion's website at www.vermilionenergy.com.
Highlights
Q4 2023 Results
- Q4 2023 fund flows from operations ("FFO")(1) was
$372 million $2.27 $143 million $229 million $1.40 - Net debt(6) decreased by
$164 million $1.1 billion 50% reduction from the peak in 2020. In addition, Vermilion returned$45 million $16 million $29 million - Production during the fourth quarter of 2023 averaged 87,597 boe/d(8), comprised of 54,216 boe/d(8) from our North American assets and 33,381 boe/d(8) from our International assets.
- Q4 2023 production benefited from a full quarter of production from
Australia andIreland following maintenance downtime in the prior quarter, as well as increased production inthe Netherlands due to new production from our 2023 drilling program.
Year End 2023 Results
- 2023 FFO(1) was
$1,143 million $6.98 $590 million $552 million $3.37 - Net debt(6) decreased by
$266 million $1.1 billion $160 million $65 million $95 million - Reported a 2023 net loss of
$238 million $1.45 $536 million $3.27 - Production during 2023 averaged 83,994 boe/d(8), which was at the mid-point of our 2023 guidance range. Strong performance across many of our business units served to offset wildfire-related downtime in
Canada and maintenance downtime inAustralia . - Year-end 2023 proved developed producing ("PDP") reserves were 173 mmboe(9) and total proved plus probable ("2P") reserves were 430 mmboe(9), reflecting a reserve life index of 5.6 years and 14.0 years, respectively.
- The after-tax net present value of PDP reserves, discounted at
10% , is$3.2 billion 10% , is$5.7 billion $28.72
Outlook
- In conjunction with our Q4 2023 release, we announced a quarterly cash dividend of
$0.12 20% increase over the prior quarterly dividend. - Given our strong financial position and continued operational momentum, we are increasing our capital return target to
50% of excess FCF and will manage to this target on a full-year basis versus our previous effective date of April 1, 2024. Year-to-date, we have repurchased and retired 1.4 million shares and plan to increase the pace of share buybacks starting immediately. - Construction of the 16,000 boe/d Mica Montney battery is progressing as planned and remains on schedule for a mid-year start-up. With the additional capacity provided by this battery, we are able to move forward with the growth phase of our Mica Montney asset, and have drilled six wells on our 16-28 BC pad that will be completed and ready for tie-in during Q2 2024.
- We continued to advance our deep gas exploration and development plans in
Germany , with drilling operations nearly complete on the first well of our program. We expect to reach total depth in the coming weeks and will then move the rig to the next location, where the second well of our program will be drilled during Q2 2024. - In
Croatia , we drilled the first exploration well on the SA-7 block in Q1 2024 and reached total measured depth of 2,371 metres, where we discovered hydrocarbons in multiple zones. We plan to evaluate and test these zones during the second quarter while commencing drilling on the second of four wells planned on the SA-7 block this year. Construction of the gas plant on the SA-10 block is progressing as planned and remains on schedule for a mid-year start-up.
($M except as indicated) | Q4 2023 | Q3 2023 | Q4 2022 | 2023 | 2022 |
Financial | |||||
Petroleum and natural gas sales | 522,969 | 475,532 | 842,693 | 2,022,555 | 3,476,394 |
Cash flows from operating activities | 343,831 | 118,436 | 495,195 | 1,024,528 | 1,814,220 |
Fund flows from operations (1) | 372,117 | 270,218 | 284,220 | 1,142,611 | 1,634,865 |
Fund flows from operations ($/basic share) (2) | 2.27 | 1.65 | 1.74 | 6.98 | 10.00 |
Fund flows from operations ($/diluted share) (2) | 2.27 | 1.62 | 1.70 | 6.98 | 9.71 |
Net (loss) earnings | (803,136) | 57,309 | 395,408 | (237,587) | 1,313,062 |
Net (loss) earnings ($/basic share) | (4.91) | 0.35 | 2.42 | (1.45) | 8.03 |
Cash flows used in investing activities | 132,932 | 170,404 | 168,053 | 576,435 | 1,059,292 |
Capital expenditures (3) | 142,887 | 125,639 | 169,305 | 590,191 | 551,817 |
Acquisitions (10) | 25,724 | 5,238 | 4,558 | 273,018 | 539,713 |
Dispositions | 14,855 | — | — | 197,007 | — |
Asset retirement obligations settled | 28,937 | 13,582 | 16,508 | 56,966 | 37,514 |
Repurchase of shares | 28,736 | 11,645 | — | 94,838 | 71,659 |
Cash dividends ($/share) | 0.10 | 0.10 | 0.08 | 0.40 | 0.28 |
Dividends declared | 16,227 | 16,367 | 13,058 | 65,248 | 45,769 |
% of fund flows from operations (11) | 4 % | 6 % | 5 % | 6 % | 3 % |
Payout (12) | 188,051 | 155,588 | 198,871 | 712,405 | 635,100 |
% of fund flows from operations (12) | 51 % | 58 % | 70 % | 62 % | 39 % |
Free cash flow (4) | 229,230 | 144,575 | 114,915 | 552,420 | 1,083,048 |
Long-term debt | 914,015 | 966,505 | 1,081,351 | 914,015 | 1,081,351 |
Net debt (6) | 1,078,567 | 1,242,522 | 1,344,586 | 1,078,567 | 1,344,586 |
Net debt to four quarter trailing fund flows from operations (7) | 0.9 | 1.2 | 0.8 | 0.9 | 0.8 |
Operational | |||||
Production (8) | |||||
Crude oil and condensate (bbls/d) | 32,866 | 31,417 | 38,915 | 31,727 | 37,530 |
NGLs (bbls/d) | 7,412 | 7,344 | 7,497 | 7,296 | 7,961 |
Natural gas (mmcf/d) | 283.91 | 263.80 | 234.23 | 269.83 | 238.18 |
Total (boe/d) | 87,597 | 82,727 | 85,450 | 83,994 | 85,187 |
Average realized prices | |||||
Crude oil and condensate ($/bbl) | 107.91 | 106.94 | 115.02 | 102.43 | 123.89 |
NGLs ($/bbl) | 33.38 | 27.77 | 39.93 | 31.54 | 45.95 |
Natural gas ($/mcf) | 8.48 | 6.32 | 17.43 | 8.17 | 18.99 |
Production mix (% of production) | |||||
% priced with reference to WTI | 29 % | 34 % | 38 % | 33 % | 38 % |
% priced with reference to Dated Brent | 17 % | 13 % | 18 % | 13 % | 16 % |
% priced with reference to AECO | 31 % | 34 % | 30 % | 33 % | 30 % |
% priced with reference to TTF and NBP | 23 % | 19 % | 14 % | 21 % | 16 % |
Netbacks ($/boe) | |||||
Operating netback (13) | 57.48 | 49.30 | 70.00 | 49.22 | 70.15 |
Fund flows from operations ($/boe) (14) | 48.83 | 35.76 | 35.08 | 37.90 | 52.65 |
Operating expenses | 15.35 | 16.26 | 16.81 | 17.03 | 15.75 |
General and administration expenses | 2.60 | 2.77 | 1.65 | 2.68 | 1.86 |
Average reference prices | |||||
WTI (US $/bbl) | 78.32 | 82.26 | 82.65 | 77.63 | 94.23 |
Dated Brent (US $/bbl) | 84.05 | 86.76 | 88.71 | 82.62 | 101.19 |
AECO ($/mcf) | 2.30 | 2.61 | 4.64 | 2.64 | 5.25 |
TTF ($/mcf) | 17.45 | 14.11 | 38.36 | 17.40 | 48.35 |
Share information ('000s) | |||||
Shares outstanding - basic | 162,271 | 163,666 | 163,227 | 162,271 | 163,227 |
Shares outstanding - diluted (15) | 166,456 | 167,904 | 168,616 | 166,456 | 168,616 |
Weighted average shares outstanding - basic | 163,335 | 163,946 | 163,105 | 163,719 | 163,489 |
Weighted average shares outstanding - diluted (15) | 163,335 | 166,392 | 167,397 | 163,719 | 168,426 |
(1) | Fund flows from operations (FFO) is a total of segments measure comparable to net (loss) earnings that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, windfall taxes, interest expense, realized gain (loss) on derivatives, realized foreign exchange gain (loss), and realized other income (expense). The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations, and make capital investments. FFO does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(2) | Fund flows from operations per share (basic and diluted) are supplementary financial measures and are not standardized financial measures under IFRS, and therefore may not be comparable to similar measures disclosed by other issuers. They are calculated using FFO (a total of segments measure) and basic/diluted shares outstanding. The measure is used to assess the contribution per share of each business unit. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(3) | Capital expenditures is a non-GAAP financial measure that is the sum of drilling and development costs and exploration and evaluation costs from the Consolidated Statements of Cash Flows. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(4) | Free cash flow (FCF) and excess free cash flow (EFCF) are non-GAAP financial measures comparable to cash flows from operating activities. FCF is comprised of FFO less drilling and development and exploration and evaluation expenditures and EFCF is FCF less payments on lease obligations and asset retirement obligations settled. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(5) | Free cash flow per basic share is a non-GAAP supplementary financial measure and is not a standardized financial measure under IFRS and may not be comparable to similar measures disclosed by other issuers. It is calculated using FCF and basic shares outstanding. |
(6) | Net debt is a capital management measure comparable to long-term debt and is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(7) | Net debt to trailing FFO is a supplementary financial measure and is not a standardized financial measure under IFRS. It may not be comparable to similar measures disclosed by other issuers and is calculated using net debt (capital management measure) and FFO (total of segment measure). The measure is used to assess the ability to repay debt. Information in this document is included by reference; refer to the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(8) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
(9) | Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") in a report dated March 5, 2024 with an effective date of December 31, 2023 (the "2023 McDaniel Reserves Report"). See Vermilion's annual information form for the year ended December 31, 2023 for additional information, including reserve pricing assumptions. Per share metrics calculated using basic shares outstanding at December 31, 2023. |
(10) | Acquisitions is a non-GAAP financial measure that is calculated as the sum of acquisitions and acquisitions of securities from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed, and net acquired working capital deficit or surplus. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(11) | Dividends % of FFO is a supplementary financial measure that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as dividends divided by FFO. The ratio is used by management as a metric to assess the cash distributed to shareholders. Reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(12) | Payout and payout % of FFO are a non-GAAP financial measure and a non-GAAP ratio, respectively, that are not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers. Payout is comparable to dividends declared and is comprised of dividends declared plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled, while the ratio is calculated as payout divided by FFO. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(13) | Operating netback is a non-GAAP financial measure comparable to net earnings and is comprised of sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(14) | Fund flows from operations per boe is a supplementary financial measure that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as FFO by boe production. Fund flows from operations per boe is used by management to assess the profitability of our business units and Vermilion as a whole. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. |
(15) | Diluted shares outstanding represent the sum of shares outstanding at the period end plus outstanding awards under the Long-term Incentive Plan ("LTIP"), based on current estimates of future performance factors and forfeiture rates. |
Message to Shareholders
We made significant progress in 2023 towards our debt reduction and asset high-grading initiatives, while also advancing key growth projects in
Vermilion generated
As a result of the progress achieved on debt reduction, we are now able to accelerate our return of capital. The return of capital framework outlined with our 2024 budget release in December contemplated a capital return target of
Our disciplined focus on strengthening the balance sheet and high-grading the asset base, along with diligent capital allocation, has made the company much stronger and much more resilient today. We ended 2023 with a strong balance sheet and have continued our operational momentum from the fourth quarter into 2024. Our 2024 capital program is well underway and we are very pleased with how things are progressing on our three key growth initiatives in
We would like to thank all our stakeholders for their ongoing support and contributions, and we look forward to providing further updates on our 2024 operational and financial results as the year progresses.
Q4 2023 Operations Review
Production from our North American operations averaged 54,216 boe/d(1) in Q4 2023, a decrease of
In the Deep Basin, we drilled five (5.0 net), completed five (5.0 net), and brought on production four (4.0 net)
Construction of the 16,000 boe/d Mica Montney battery is progressing as planned and remains on schedule for a mid-year start-up. Once operational, this battery will more than double our
International
Production from our International operations averaged 33,381 boe/d(1) in Q4 2023, an increase of
We continued to advance our deep gas exploration and development plans in
In
2023 Reserves Update
Our 2023 proved developed producing ("PDP") reserves decreased by
Over the past couple years, we have placed a great deal of focus on asset high-grading and advancing several key growth projects within our portfolio to increase FCF per share. As a result, some of our near-term capital allocation priorities have shifted, with a greater emphasis on funding our Mica Montney development and
The PDP and 2P reserve life index at December 31, 2023 is 5.6 years and 14.0 years, respectively, both of which are in line with our long-term average and appropriately reflect the conventional composition of our asset base. The after-tax net present value of PDP reserves, discounted at
The following table provides a summary of company interest reserves by reserve category and region on an oil equivalent basis. Please refer to Vermilion's 2023 Annual Information Form for the year ending December 31, 2023 ("2023 Annual Information Form") for detailed information by country and product type.
BOE (mboe) | Proved Developed | Proved Developed | Proved | Proved | Probable | Proved Plus |
112,204 | 5,450 | 78,031 | 195,685 | 120,355 | 316,040 | |
International | 60,502 | 6,892 | 5,305 | 72,700 | 41,098 | 113,798 |
Vermilion | 172,706 | 12,342 | 83,336 | 268,385 | 161,453 | 429,838 |
The following table provides a reconciliation of changes in company interest reserves by reserve category and region. Please refer to Vermilion's 2023 Annual Information Form for detailed information by country and product type and for an explanation concerning the reserve change categories. The following tables may not total due to rounding.
PDP (mboe) | International | Vermilion | |
December 31, 2022 | 133,879 | 54,738 | 188,617 |
Discoveries | — | — | — |
Extensions & Improved Recovery | 5,399 | 293 | 5,692 |
Technical Revisions | 2,931 | 2,706 | 5,637 |
Acquisitions | 2,791 | 12,548 | 15,339 |
Dispositions | (12,456) | — | (12,456) |
Economic Factors | 194 | 339 | 533 |
Production | (20,534) | (10,122) | (30,656) |
December 31, 2023 | 112,204 | 60,502 | 172,706 |
1P (mboe) | International | Vermilion | |
December 31, 2022 | 244,670 | 68,461 | 313,129 |
Discoveries | — | — | — |
Extensions & Improved Recovery | 23,735 | 692 | 24,428 |
Technical Revisions | (28,211) | 729 | (27,483) |
Acquisitions | 2,812 | 12,548 | 15,360 |
Dispositions | (27,361) | — | (27,361) |
Economic Factors | 575 | 395 | 969 |
Production | (20,534) | (10,122) | (30,657) |
December 31, 2023 | 195,685 | 72,699 | 268,385 |
2P (mboe) | International | Vermilion | |
December 31, 2022 | 412,044 | 110,744 | 522,790 |
Discoveries | — | — | — |
Extensions & Improved Recovery | 27,280 | 25 | 27,305 |
Technical Revisions | (59,548) | (2,951) | (62,500) |
Acquisitions | 3,613 | 17,209 | 20,823 |
Dispositions | (47,310) | — | (47,310) |
Economic Factors | 495 | (1,107) | (612) |
Production | (20,534) | (10,122) | (30,657) |
December 31, 2023 | 316,040 | 113,799 | 429,838 |
Additional information about our 2023 McDaniel Reserves Report can be found in our 2023 Annual Information Form on our website at www.vermilionenergy.com and on SEDAR+ at www.sedarplus.ca.
Outlook and Guidance Update
Our Q1 2024 capital program is progressing as planned with a primary focus on
Organizational Update
Mr. Bryce Kremnica has stepped down as Vice President of
Commodity Hedging
Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of March 6, 2024, we have
(Signed "Dion Hatcher")
Dion Hatcher
President & Chief Executive Officer
March 6, 2024
(1) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
(2) | Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") in a report dated March 5, 2024 with an effective date of December 31, 2023 (the "2023 McDaniel Reserves Report"). Net present value of discounted cash flows as provided in the 2023 McDaniel Reserves Report. See Vermilion's annual information form for the year ended December 31, 2023 for additional information, including reserve pricing assumptions. |
(3) | Per share metrics calculated using basic shares outstanding at December 31, 2023, refer to Highlights table for additional information. |
Non-GAAP and Other Specified Financial Measures
This report and other materials released by Vermilion includes financial measures that are not standardized, specified, defined, or determined under IFRS and are therefore considered non-GAAP or other specified financial measures and may not be comparable to similar measures presented by other issuers. These financial measures include:
Total of Segments Measures
Fund flows from operations (FFO): Most directly comparable to net (loss) earnings, FFO is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, windfall taxes, interest expense, realized gain (loss) on derivatives, realized foreign exchange gain (loss), and realized other income (expense). The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments.
Q4 2023 | Q4 2022 | 2023 | 2022 | |||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |
Sales | 522,969 | 68.64 | 842,693 | 103.99 | 2,022,555 | 67.10 | 3,476,394 | 111.95 |
Royalties | (45,148) | (5.93) | (68,303) | (8.43) | (191,694) | (6.36) | (306,017) | (9.85) |
Transportation | (22,441) | (2.95) | (21,976) | (2.71) | (88,856) | (2.95) | (78,896) | (2.54) |
Operating | (116,937) | (15.35) | (136,247) | (16.81) | (513,381) | (17.03) | (489,034) | (15.75) |
General and administration | (19,810) | (2.60) | (13,344) | (1.65) | (80,716) | (2.68) | (57,677) | (1.86) |
Corporate income tax expense | (19,374) | (2.54) | (41,958) | (5.18) | (91,932) | (3.05) | (208,153) | (6.70) |
Windfall taxes | (249) | (0.03) | (222,859) | (27.50) | (78,426) | (2.60) | (222,859) | (7.18) |
PRRT | 20,860 | 2.74 | (5,045) | (0.62) | 20,860 | 0.69 | (18,318) | (0.59) |
Interest expense | (22,909) | (3.01) | (22,506) | (2.78) | (85,212) | (2.83) | (82,858) | (2.67) |
Realized gain (loss) on derivatives | 78,737 | 10.33 | (43,940) | (5.42) | 234,365 | 7.77 | (405,894) | (13.07) |
Realized foreign exchange gain (loss) | (5,529) | (0.73) | 18,845 | 2.33 | (4,532) | (0.15) | 15,195 | 0.49 |
Realized other (expense) income | 1,948 | 0.26 | (1,140) | (0.14) | (420) | (0.01) | 12,982 | 0.42 |
Fund flows from operations | 372,117 | 48.83 | 284,220 | 35.08 | 1,142,611 | 37.90 | 1,634,865 | 52.65 |
Equity based compensation | (7,871) | (5,377) | (42,756) | (44,390) | ||||
Unrealized (loss) gain on derivative instruments (1) | 141,126 | 549,693 | 179,707 | 540,801 | ||||
Unrealized foreign exchange (loss) gain (1) | 4,834 | (47,405) | 12,438 | (84,464) | ||||
Accretion | (19,469) | (16,501) | (78,187) | (58,170) | ||||
Depletion and depreciation | (259,012) | (171,926) | (712,619) | (577,134) | ||||
Deferred tax recovery (expense) | 110,758 | (196,733) | 190,193 | (288,707) | ||||
Gain on business combination | (5,607) | — | 439,487 | — | ||||
Loss on disposition | (125,539) | — | (352,367) | — | ||||
Impairment (expense) reversal | (1,016,094) | — | (1,016,094) | 192,094 | ||||
Unrealized other expense | 1,621 | (563) | — | (1,833) | ||||
Net (loss) earnings | (803,136) | 395,408 | (237,587) | 1,313,062 | ||||
(1) | Unrealized gain on derivative instruments, Unrealized foreign exchange gain (loss), and Unrealized other expense are line items from the respective Consolidated Statements of Cash Flows. |
Non-GAAP Financial Measures and Non-GAAP Ratios
Free cash flow (FCF) and excess free cash flow (EFCF): Most directly comparable to cash flows from operating activities, FCF is comprised of fund flows from operations less drilling and development costs and exploration and evaluation cost and EFCF is comprised of FCF less payments on lease obligations and asset retirement obligations settled. The measure is used to determine the funding available for investing and financing activities including payment of dividends, repayment of long-term debt, reallocation into existing business units and deployment into new ventures. EFCF is used to determine the funding available to return to shareholders after costs attributable to normal business operations.
($M) | Q4 2023 | Q4 2022 | 2023 | 2022 |
Cash flows from operating activities | 343,831 | 495,195 | 1,024,528 | 1,814,220 |
Changes in non-cash operating working capital | (651) | (227,483) | 61,117 | (216,869) |
Asset retirement obligations settled | 28,937 | 16,508 | 56,966 | 37,514 |
Fund flows from operations | 372,117 | 284,220 | 1,142,611 | 1,634,865 |
Drilling and development | (132,308) | (157,849) | (569,110) | (528,056) |
Exploration and evaluation | (10,579) | (11,456) | (21,081) | (23,761) |
Free cash flow | 229,230 | 114,915 | 552,420 | 1,083,048 |
Payments on lease obligations | (3,977) | (8,019) | (17,094) | (21,168) |
Asset retirement obligations settled | (28,937) | (16,508) | (56,966) | (37,514) |
Excess free cash flow | 196,316 | 90,388 | 478,360 | 1,024,366 |
Adjusted working capital: Defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, a capital measure disclosed above.
As at | ||
($M) | Dec 31, 2023 | Dec 31, 2022 |
Current assets | 823,514 | 714,446 |
Current derivative asset | (313,792) | (162,843) |
Current liabilities | (696,074) | (892,045) |
Current lease liability | 21,068 | 19,486 |
Current derivative liability | 732 | 55,845 |
Adjusted working capital | (164,552) | (265,111) |
Capital expenditures: Calculated as the sum of drilling and development costs and exploration and evaluation costs from the Consolidated Statements of Cash Flows and most directly comparable to cash flows used in investing activities. We consider capital expenditures to be a useful measure of our investment in our existing asset base. Capital expenditures are also referred to as E&D capital.
($M) | Q4 2023 | Q4 2022 | 2023 | 2022 |
Drilling and development | 132,308 | 157,849 | 569,110 | 528,056 |
Exploration and evaluation | 10,579 | 11,456 | 21,081 | 23,761 |
Capital expenditures | 142,887 | 169,305 | 590,191 | 551,817 |
Operating netback: Most directly comparable to net earnings and 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.
Payout and payout % of FFO: A non-GAAP financial measure and non-GAAP ratio respectively most directly comparable to dividends declared. Payout is comprised of dividends declared plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled. The measure is used to assess the amount of cash distributed back to shareholders and reinvested in the business for maintaining production and organic growth. The reconciliation of the measure to primary financial statement measure can be found below. Management uses payout and payout as a percentage of FFO (also referred to as the payout or sustainability ratio).
($M) | Q4 2023 | Q4 2022 | 2023 | 2022 |
Dividends Declared | 16,227 | 13,058 | 65,248 | 45,769 |
Drilling and development | 132,308 | 157,849 | 569,110 | 528,056 |
Exploration and evaluation | 10,579 | 11,456 | 21,081 | 23,761 |
Asset retirement obligations settled | 28,937 | 16,508 | 56,966 | 37,514 |
Payout | 188,051 | 198,871 | 712,405 | 635,100 |
% of fund flows from operations | 51 % | 70 % | 62 % | 39 % |
Acquisitions: The sum of acquisitions and acquisitions of securities from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed, and net acquired working capital deficit or surplus. We believe that including these components provides a useful measure of the economic investment associated with our acquisition activity and is most directly comparable to cash flows used in investing activities. A reconciliation to the acquisitions line items in the Consolidated Statements of Cash Flows can be found below.
($M) | Q4 2023 | Q4 2022 | 2023 | 2022 |
Acquisitions, net of cash acquired | 2,669 | 3,594 | 142,281 | 510,309 |
Acquisition of securities | 17,448 | 964 | 21,603 | 23,282 |
Acquired working capital deficit | 5,607 | — | 109,134 | 6,122 |
Acquisitions | 25,724 | 4,558 | 273,018 | 539,713 |
Capital Management Measure
Net debt: Is in accordance with IAS 1 "Presentation of Financial Statements" and is most directly comparable to long-term debt. Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital and represents Vermilion's net financing obligations after adjusting for the timing of working capital fluctuations.
As at | ||
($M) | Dec 31, 2023 | Dec 31, 2022 |
Long-term debt | 914,015 | 1,081,351 |
Adjusted working capital | 164,552 | 265,111 |
Unrealized FX on swapped USD borrowings | — | (1,876) |
Net debt | 1,078,567 | 1,344,586 |
Ratio of net debt to four quarter trailing fund flows from operations | 0.9 | 0.8 |
Supplementary Financial Measures
Net debt to four quarter trailing fund flows from operations: Calculated as net debt (capital management measure) over the FFO (total of segments measure) from the preceding four quarters. The measure is used to assess the ability to repay debt.
Dividends % of FFO: Calculated as dividends declared divided by FFO (total of segments measure). The measure is used by management as a metric to assess the cash distributed to shareholders.
Fund flows from operations per boe: Calculated as FFO (total of segments measure) by boe production. Fund flows from operations per boe is used by management to assess the profitability of our business units and Vermilion as a whole.
Management's Discussion and Analysis and Consolidated Financial Statements
To view Vermilion's Management's Discussion and Analysis and Consolidated Financial Statements for the year ended December 31, 2023 and 2022, please refer to SEDAR+ (www.sedarplus.ca) or Vermilion's website at https://www.vermilionenergy.com/invest-with-us/reports-filings.cfm.
About Vermilion
Vermilion is an international energy producer that seeks to create value through the acquisition, exploration, development and optimization of producing assets in
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 by leading ESG rating agencies for our transparency on and management of key environmental, social and governance issues. In addition, we emphasize strategic community investment in each of our operating areas.
Vermilion trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbol VET.
Disclaimer
Certain statements included or incorporated by reference in this document may constitute forward-looking statements or information 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 and Vermilion's ability to fund such expenditures; Vermilion's additional debt capacity providing it with additional working capital; statements regarding the return of capital, the flexibility of Vermilion's capital program and operations; business strategies and objectives; operational and financial performance; estimated volumes of reserves and resources; petroleum and natural gas sales; future production levels and the timing thereof, including Vermilion's 2023 guidance, and rates of average annual production growth; the effect of changes in crude oil and natural gas prices, changes in exchange and inflation rates; significant declines in production or sales volumes due to unforeseen circumstances; the effect of possible changes in critical accounting estimates; statements regarding the growth and size of Vermilion's future project inventory wells expected to be drilled in 2023; exploration and development plans and the timing thereof; Vermilion's ability to reduce its debt; statements regarding Vermilion's hedging program, its plans to add to its hedging positions, and the anticipated impact of Vermilion's hedging program on project economics and free cash flows; the potential financial impact of climate-related risks; 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 and Vermilion's expectations regarding future taxes and taxability; and the timing of regulatory proceedings and approvals.
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
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, interest rates, and inflation 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 or involving 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.
This document contains metrics commonly used in the oil and gas industry. These oil and gas metrics do not have any standardized meaning or standard methods of calculation and therefore may not be comparable to similar measures presented by other companies where similar terminology is used and should therefore not be used to make comparisons. 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.
This document may contain references to sustainability/ESG data and performance that reflect metrics and concepts that are commonly used in such frameworks as the Global Reporting Initiative, the Task Force on Climate-related Financial Disclosures, and the Value Reporting Foundation (Sustainability Accounting Standards Board). Vermilion has used best efforts to align with the most commonly accepted methodologies for ESG reporting, including with respect to climate data and information on potential future risks and opportunities, in order to provide a fuller context for our current and future operations. However, these methodologies are not yet standardized, are frequently based on calculation factors that change over time, and continue to evolve rapidly. Readers are particularly cautioned to evaluate the underlying definitions and measures used by other companies, as these may not be comparable to Vermilion's. While Vermilion will continue to monitor and adapt its reporting accordingly, the Company is not under any duty to update or revise the related sustainability/ESG data or statements except as required by applicable securities laws.
Financial data contained within this document are reported in Canadian dollars, unless otherwise stated.
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SOURCE Vermilion Energy Inc.
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