![](/cdn/assets/images/search/clock.png)
We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type |
---|---|---|---|
Vermilion Energy Inc | TSX:VET | Toronto | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.06 | -0.39% | 15.39 | 15.38 | 15.40 | 15.46 | 15.28 | 15.33 | 160,557 | 16:16:20 |
CALGARY, July 31, 2014 /PRNewswire/ - 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 six months ended June 30, 2014.
HIGHLIGHTS
(1) | Additional GAAP Financial Measure. Please see the "Additional and Non-GAAP Financial Measures" section of Management's Discussion and Analysis. |
Vermilion Energy Inc. Second Quarter 2014 Conference Call and Audio Webcast Details
Vermilion will discuss these results in a conference call to be held on Thursday, July 31, 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 65722904. The replay will be available until midnight eastern time on August 7, 2014.
You may also listen to the audio webcast by clicking http://event.on24.com/r.htm?e=813553&s=1&k=D1BE33AF46B4AC5B296C96983A231587 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.
DISCLAIMER
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.
ABBREVIATIONS
$M | thousand dollars | |
$MM | million dollars | |
AECO | the daily average benchmark price for natural gas at the AECO 'C' hub in southeast Alberta | |
bbl(s) | barrel(s) | |
bbls/d | barrels per day | |
bcf | billion cubic feet | |
boe | barrel of oil equivalent, including: crude oil, natural gas liquids and natural gas (converted on the basis of one boe for six mcf of natural gas) | |
boe/d | barrel of oil equivalent per day | |
GJ | gigajoules | |
mbbls | thousand barrels | |
mboe | thousand barrel of oil equivalent | |
mcf | thousand cubic feet | |
mcf/d | thousand cubic feet per day | |
mmboe | million barrel of oil equivalent | |
mmcf | million cubic feet | |
mmcf/d | million cubic feet per day | |
MWh | megawatt hour | |
NGLs | natural gas liquids | |
PRRT | Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia | |
TTF | the day-ahead price for natural gas in the Netherlands, quoted in MWh of natural gas, at the Title Transfer Facility Virtual Trading Point operated by Dutch TSO Gas Transport Services | |
WTI | West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma |
HIGHLIGHTS
Three Months Ended | Six Months Ended | |||||||||||
($M except as indicated) | Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | |||||||
Financial | 2014 | 2014 | 2013 | 2014 | 2013 | |||||||
Petroleum and natural gas sales | 387,684 | 381,183 | 311,966 | 768,867 | 621,542 | |||||||
Fund flows from operations (1) | 216,076 | 205,363 | 174,592 | 421,439 | 338,221 | |||||||
Fund flows from operations ($/basic share) | 2.05 | 2.01 | 1.73 | 4.05 | 3.38 | |||||||
Fund flows from operations ($/diluted share) | 2.01 | 1.97 | 1.71 | 3.99 | 3.33 | |||||||
Net earnings | 53,993 | 102,788 | 106,198 | 156,781 | 158,335 | |||||||
Net earnings ($/basic share) | 0.51 | 1.00 | 1.05 | 1.51 | 1.58 | |||||||
Capital expenditures | 135,073 | 196,375 | 78,118 | 331,448 | 258,587 | |||||||
Acquisitions | 381,139 | 178,227 | - | 559,366 | - | |||||||
Asset retirement obligations settled | 2,381 | 2,651 | 2,370 | 5,032 | 3,758 | |||||||
Cash dividends ($/share) | 0.645 | 0.645 | 0.600 | 1.290 | 1.200 | |||||||
Dividends declared | 68,710 | 66,007 | 60,776 | 134,717 | 120,388 | |||||||
% of fund flows from operations | 32% | 32% | 35% | 32% | 36% | |||||||
Net dividends (1) | 49,561 | 47,122 | 42,146 | 96,683 | 86,226 | |||||||
% of fund flows from operations | 23% | 23% | 24% | 23% | 25% | |||||||
Payout (1) | 187,015 | 246,148 | 122,634 | 433,163 | 348,571 | |||||||
% of fund flows from operations | 87% | 120% | 70% | 103% | 103% | |||||||
% of fund flows from operations (excluding the Corrib project) | 73% | 111% | 55% | 92% | 90% | |||||||
Net debt (1) | 1,168,998 | 966,310 | 674,368 | 1,168,998 | 674,368 | |||||||
Ratio of net debt to annualized fund flows from operations (1) | 1.4 | 1.2 | 1.0 | 1.4 | 1.0 | |||||||
Operational | ||||||||||||
Production | ||||||||||||
Crude oil (bbls/d) | 30,184 | 27,318 | 26,638 | 28,759 | 25,119 | |||||||
NGLs (bbls/d) | 2,892 | 2,140 | 1,775 | 2,518 | 1,604 | |||||||
Natural gas (mmcf/d) | 114.08 | 103.32 | 86.40 | 108.73 | 84.29 | |||||||
Total (boe/d) | 52,089 | 46,677 | 42,813 | 49,398 | 40,772 | |||||||
Average realized prices | ||||||||||||
Crude oil and NGLs ($/bbl) | 109.89 | 111.62 | 98.95 | 110.73 | 101.42 | |||||||
Natural gas ($/mcf) | 6.19 | 7.99 | 7.22 | 7.04 | 7.00 | |||||||
Production mix (% of production) | ||||||||||||
% priced with reference to WTI | 30% | 25% | 25% | 27% | 24% | |||||||
% priced with reference to AECO | 18% | 17% | 17% | 18% | 18% | |||||||
% priced with reference to TTF | 18% | 19% | 17% | 19% | 17% | |||||||
% priced with reference to Dated Brent | 34% | 39% | 41% | 36% | 41% | |||||||
Netbacks ($/boe) (1) | ||||||||||||
Operating netback | 59.52 | 63.20 | 59.30 | 61.29 | 59.24 | |||||||
Fund flows from operations netback | 46.24 | 47.76 | 44.90 | 46.98 | 44.40 | |||||||
Operating expenses | 12.46 | 13.49 | 12.36 | 12.95 | 13.21 | |||||||
Average reference prices | ||||||||||||
WTI (US $/bbl) | 102.99 | 98.68 | 94.22 | 100.84 | 94.30 | |||||||
Edmonton Sweet index (US $/bbl) | 96.85 | 90.43 | 90.56 | 93.65 | 88.99 | |||||||
Dated Brent (US $/bbl) | 109.63 | 108.22 | 102.44 | 108.93 | 107.50 | |||||||
AECO ($/GJ) | 4.44 | 5.42 | 3.35 | 4.93 | 3.19 | |||||||
TTF ($/GJ) | 7.91 | 10.19 | 10.14 | 9.02 | 10.23 | |||||||
Average foreign currency exchange rates | ||||||||||||
CDN $/US $ | 1.09 | 1.10 | 1.02 | 1.10 | 1.02 | |||||||
CDN $/Euro | 1.50 | 1.51 | 1.34 | 1.50 | 1.33 | |||||||
Share information ('000s) | ||||||||||||
Shares outstanding - basic | 106,620 | 102,453 | 101,418 | 106,620 | 101,418 | |||||||
Shares outstanding - diluted (1) | 109,371 | 105,167 | 103,735 | 109,371 | 103,735 | |||||||
Weighted average shares outstanding - basic | 105,577 | 102,278 | 100,964 | 103,936 | 100,137 | |||||||
Weighted average shares outstanding - diluted (1) | 107,330 | 104,171 | 102,223 | 105,531 | 101,578 |
(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 are celebrating Vermilion's 20th anniversary as a publicly traded company. It has been a demanding, but also 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. During this time, we have remained committed to stewarding our Company in the best interests of our shareholders. We are pleased that our efforts have been both recognized and supported by our shareholders, resulting in a compound average total return including dividends, as of June 30, 2014, of 36.8% 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.
Perhaps more important to both our current and prospective shareholders, it is our belief that Vermilion is better situated for continued growth than at any other time in our history. With the anticipated growth of fund flows from operations(1), the consistent strength 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 continuing to provide a reliable and growing dividend stream to our shareholders.
While we are confident that the assets in our current portfolio contain significant opportunity for growth for years to come, we also find ourselves uniquely positioned to advantageously grow and further diversify our opportunity base through potential acquisition activity in both North American and international markets. 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(1) growth on the horizon (including from Corrib, which is slated to come on production in mid-2015), we are uniquely 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 second quarter of 2014 marks another quarter of high activity and effective operational execution for our Company. We achieved significant quarter-over-quarter production growth largely attributable to strong results from our successful Mannville condensate-rich gas and Cardium light-oil development programs in Canada. Production volumes from our Mannville development program averaged more than 4,600 boe/d, an increase of 50% during the second quarter, while Cardium production averaged more than 12,000 boe/d, an increase of 17% from the prior quarter. Operating netbacks(1) for our Cardium production averaged more than $70/boe in the second quarter. 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 and approximately five fewer Cardium wells than originally anticipated to meet our objectives for our 2014 Cardium program. As a result, we are diverting a portion of our previously planned Cardium expenditures to our Mannville development program which also generates very robust economics. With the incremental capital, we now plan to drill approximately 15 (9 net) Mannville wells in 2014, up from eight (5.7 net) wells in our original budget. Looking forward, we anticipate our Mannville drilling activity will continue to increase in future years as we develop our substantial inventory of highly economic prospects.
We continue to appraise our position in the Duvernay condensate-rich resource play, where we have amassed 317 net sections at the relatively low cost of approximately $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 is located in the downdip part of our Edson block where condensate yields are expected to be lower than the average in 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 later in the third quarter of 2014). Our second horizontal appraisal well, 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 of this second well, also employing microseismic monitoring, is expected during the third quarter. During drilling operations, both the Edson and West Pembina wells encountered stability issues in the build section of the wellbore near the heel of the horizontal well. Both wells were ultimately sidetracked to reach total measured depths of slightly more than 4,700 metres. Drilling operations lasted approximately 100 days per well, double our original estimate. The longer-than-expected drilling time took us past break-up, resulting in wet lease conditions and further contributed to higher costs. As a result of these drilling challenges, we are now forecasting total net well costs for the two horizontal wells of approximately $40 million, including completion, equip and tie-in, microseismic and related monitoring-well workovers. Our development-phase target for 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 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 latter half of the decade.
On April 29, 2014, we announced the completion of our acquisition of Elkhorn Resources Inc., a private southeast Saskatchewan producer, for total consideration of $427 million. The assets consist of high netback, light oil producing assets 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. More than 90% of the current production base is operated by Vermilion. Production from the assets was moderately impacted by recent flooding in S.E. Saskatchewan and are projected to average approximately 3,750 boe/d (97% crude oil) during the remainder of 2014. We have currently identified approximately 175 (152 net) potential drilling locations targeting the Midale, Frobisher, Bakken, and Three Forks/Torquay formations. We began a two-rig, 13-well Midale drilling program in June 2014.
We were also active in Europe during the second quarter of 2014 with drilling operations in both France and the Netherlands. In France, we drilled two of five planned wells in Champotran in follow-up to our highly successful 2013 drilling campaign. These first two wells have been put on production during July at initial rates averaging 275 bbls/d per well. The remaining three wells at Champotran will be drilled before the end of the third quarter. Our first well in the Parentis field has been put on production at a rate of 20 bbls/d. A new pool exploratory test at Cazaux North has been evaluated as dry and will be abandoned. We currently plan a seven-well drilling program in France during 2014, with two previously planned wells deferred to later-year programs to optimize surface access and reduce rig move costs. During the second quarter of 2014, we advanced preparations for the phased transfer of our shut-in Vic Bihl 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 late-2015.
In the Netherlands, we drilled two additional wells during the second quarter of 2014. The Havelte-01 well in the Steenwijk concession in Friesland (50% working interest) came in low to prognosis and was plugged and abandoned. However, as part of the Havelte-01 project, we will tie-in a previously-stranded gas discovery at Eesveen-01. First gas is anticipated to occur from Eesveen in early 2015 at an anticipated rate of 3 mmcf/d net to Vermilion. The Lambertschaag-02 well was non-commercial in its primary objective but did encounter other zones of interest with significant gas shows that will be further evaluated during the third quarter of 2014. There are three wells remaining in our 2014 Netherlands drilling program with one planned during the third quarter and two in the fourth quarter. Late in the second quarter, we initiated production from the Zechstein carbonate formation of the previously-idle DeHoeve-01 well (42% working interest), at a rate of 3 mmcf/d, net to Vermilion. Our undeveloped land base in the Netherlands now totals more than 800,000 net acres, and it is our intention to generally increase annual activity levels to maintain a rolling inventory of projects so that each year's capital program will involve a combination of drilling new wells and the tie-in of previous successes.
In Germany, we have now established an office in Berlin, placed an experienced Managing Director, and are progressing well with recruiting a supporting technical team to oversee both our existing assets and potential new opportunities. Our current 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 are expected to contribute approximately 2,300 boe/d of production for calendar 2014, and include both exploration and production licenses that comprise a total of 207,000 gross acres, of which 85% is in the exploration license. Germany is a producing region with a long history of oil and gas development activity, low political risk, and strong marketing fundamentals. Our position 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. During the first quarter of 2014, we participated in the drilling of one (0.25 net) development well in Germany. This well logged 81 metres of net pay and is expected to be tested and put on production during the second half of 2014.
On May 22, 2014, we announced the completion of tunnel boring operations beneath Sruwaddacon Bay at our Corrib project in Ireland. The tunnel boring machine has now been demobilized and the project is progressing well with respect to several key activities that remain to be completed prior to initial production at Corrib. These activities include the installation of flow and umbilical lines within the tunnel, grouting of the tunnel, certain offshore well workover activities, and receipt of final authorizations for start-up of the Bellanaboy gas facility. The most significant remaining offshore workover activity at our Corrib field was successfully completed subsequent to the end of the quarter. The Corrib P6 well was flow tested for 24 hours at a final flow rate of 112 mmcf/d at a flowing bottom hole pressure of 3260 psi, representing an approximate 44 percent drawdown from reservoir pressure. The test rates were within expectations, reconfirming previous test rates. The well was still "cleaning up" at the end of the test, exhibiting an increasing flow rate at increasing flowing bottom hole pressure when the test period ended. The P6 test confirms that all five wells required for start-up at Corrib are ready to flow. Based on the current deterministic schedule for the project, 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 the 2015 drilling program, as well as re-lifing and maintenance projects on our two platforms. In order to meet current marketing agreements and provide long-term certainty to our customers, 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 approximately 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. Given the strength of our operations, we have elected to increase our previous 2014 average annual production guidance from a range of 48,000-49,000 boe/d to a range of 48,500-49,500 boe/d. Assuming commodity prices remain near current levels for the remainder of 2014, we anticipate that we can fully fund our net dividends(1) and development capital expenditures (excluding capital investment at Corrib) with fund flows from operations during 2014. With the shifts in capital spending outlined previously, we currently anticipate full year 2014 capital expenditure to total approximately $650 million, an increase from our previous guidance of $635 million. This increase largely reflects a shift in spending to increase Mannville development drilling as well as higher costs for our Duvernay appraisal wells.
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 approximately 5% to 7% along with 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.
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.
(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. |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated July 30, 2014, of Vermilion Energy Inc.'s ("Vermilion" or the "Company") operating and financial results as at and for the three and six months ended June 30, 2014 compared with the corresponding periods in the prior year.
This discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2014 and the audited consolidated financial statements for the year ended December 31, 2013 and 2012, together with accompanying notes. Additional information relating to Vermilion, including its Annual Information Form, is available on SEDAR at www.sedar.com or on Vermilion's website at www.vermilionenergy.com.
The unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2014 and comparative information have been prepared in Canadian dollars, except where another currency is indicated, and in accordance with IAS 34, "Interim financial reporting", as issued by the International Accounting Standard Board ("IASB").
This MD&A includes references to certain financial measures which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). As such, these financial measures are considered additional GAAP or non-GAAP financial measures and therefore are unlikely to be comparable with similar financial measures presented by other issuers. These additional GAAP and non-GAAP financial measures include:
For a full description of these and other non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES".
VERMILION'S BUSINESS
Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, development and optimization of producing properties in Western Canada, Europe, and Australia. We manage our business through our Calgary head office and our international business unit offices.
This MD&A separately discusses each of our business units in addition to our corporate segment.
Prior to December 31, 2013, Vermilion combined the operating and financial results of the Canada business unit and the Corporate segment and presented the combined results as Canada.
GUIDANCE
We first issued 2014 capital expenditure guidance of $555 million on November 7, 2013. We subsequently increased our 2014 capital expenditure guidance to $590 million on March 18, 2014, to reflect an additional $35 million of 2014 development capital expected to be incurred in association with our acquisition of Elkhorn Resources Inc. Concurrent with the release of our first quarter 2014 financial and operating results on May 2, 2014, we further updated our 2014 capital expenditure guidance to $635 million, reflecting the expected full-year rise in the cost to Vermilion, in Canadian dollar terms, of both actual and anticipated international capital expenditures as a result of the devaluation of the Canadian dollar against both the U.S. dollar and the Euro, and the addition of approximately $15 million of anticipated spending associated with drilling activities. We also increased our original production guidance from 47,500-48,500 boe/d to 48,000-49,000 boe/d.
Based on the continued strength of our operations during the second quarter of 2014, we are further increasing our full-year 2014 production and capital expenditure guidance to 48,500-49,500 boe/d and $650 million, respectively. The increase in capital expenditures is due to increased Mannville development drilling and higher than anticipated costs associated with the Duvernay appraisal program.
The following table summarizes our 2014 guidance:
Date | Capital Expenditures ($MM) | Production (boe/d) | ||||||||||||||
2014 Guidance | November 7, 2013 | 555 | 45,000 to 46,000 | |||||||||||||
2014 Guidance - Update | March 18, 2014 | 590 | 47,500 to 48,500 | |||||||||||||
2014 Guidance - Update | May 2, 2014 | 635 | 48,000 to 49,000 | |||||||||||||
2014 Guidance - Update | July 31, 2014 | 650 | 48,500 to 49,500 |
SHAREHOLDER RETURN
Vermilion strives to provide investors with reliable and growing dividends in addition to sustainable, global production growth. The following table, as of June 30, 2014, reflects our trailing one, three, and five year performance:
Total return (1) | Trailing One Year | Trailing Three Year | Trailing Five Year | ||||||||
Dividends per Vermilion share | $2.49 | $7.11 | $11.67 | ||||||||
Capital appreciation per Vermilion share | $22.84 | $23.25 | $45.02 | ||||||||
Total return per Vermilion share | 49.3% | 59.5% | 193.9% | ||||||||
Annualized total return per Vermilion share | 49.3% | 16.8% | 24.1% | ||||||||
Annualized total return on the S&P TSX High Income Energy Index | 29.3% | 6.2% | 11.5% |
(1) |
The above table includes non-GAAP financial measures which may not be
comparable to other companies. Please see the "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES" section of this MD&A. |
CONSOLIDATED RESULTS OVERVIEW
Three Months Ended | % change | Six Months Ended | % change | ||||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||||
2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||||
Production | |||||||||||||||||
Crude oil (bbls/d) | 30,184 | 27,318 | 26,638 | 10% | 13% | 28,759 | 25,119 | 14% | |||||||||
NGLs (bbls/d) | 2,892 | 2,140 | 1,775 | 35% | 63% | 2,518 | 1,604 | 57% | |||||||||
Natural gas (mmcf/d) | 114.08 | 103.32 | 86.40 | 10% | 32% | 108.73 | 84.29 | 29% | |||||||||
Total (boe/d) | 52,089 | 46,677 | 42,813 | 12% | 22% | 49,398 | 40,772 | 21% | |||||||||
Build (draw) in inventory (mbbl) | 67 | (98) | 6 | (31) | (238) | ||||||||||||
Financial metrics | |||||||||||||||||
Fund flows from operations ($M) | 216,076 | 205,363 | 174,592 | 5% | 24% | 421,439 | 338,221 | 25% | |||||||||
Per share ($/basic share) | 2.05 | 2.01 | 1.73 | 2% | 18% | 4.05 | 3.38 | 20% | |||||||||
Net earnings ($M) | 53,993 | 102,788 | 106,198 | (47%) | (49%) | 156,781 | 158,335 | (1%) | |||||||||
Per share ($/basic share) | 0.51 | 1.00 | 1.05 | (49%) | (51%) | 1.51 | 1.58 | (4%) | |||||||||
Cash flows from operating activities ($M) | 149,592 | 178,238 | 179,074 | (16%) | (16%) | 327,830 | 369,786 | (11%) | |||||||||
Net debt ($M) | 1,168,998 | 966,310 | 674,368 | 21% | 73% | 1,168,998 | 674,368 | 73% | |||||||||
Cash dividends ($/share) | 0.645 | 0.645 | 0.600 | - | 8% | 1.290 | 1.200 | 8% | |||||||||
Activity | |||||||||||||||||
Capital expenditures ($M) | 135,073 | 196,375 | 78,118 | (31%) | 73% | 331,448 | 258,587 | 28% | |||||||||
Acquisitions ($M) | 381,139 | 178,227 | - | 114% | 100% | 559,366 | - | 100% | |||||||||
Gross wells drilled | 13.00 | 24.00 | 6.00 | 37.00 | 34.00 | ||||||||||||
Net wells drilled | 6.72 | 18.83 | 4.86 | 25.55 | 31.36 |
Operational review
Financial review
Net earnings
Cash flows from operating activities
Fund flows from operations
Net debt
Dividends
COMMODITY PRICES
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | |||||||||
2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | |||||||||
Average reference prices | ||||||||||||||||
WTI (US $/bbl) | 102.99 | 98.68 | 94.22 | 4% | 9% | 100.84 | 94.30 | 7% | ||||||||
Edmonton Sweet index (US $/bbl) | 96.85 | 90.43 | 90.56 | 7% | 7% | 93.65 | 88.99 | 5% | ||||||||
Dated Brent (US $/bbl) | 109.63 | 108.22 | 102.44 | 1% | 7% | 108.93 | 107.50 | 1% | ||||||||
AECO ($/GJ) | 4.44 | 5.42 | 3.35 | (18%) | 33% | 4.93 | 3.19 | 55% | ||||||||
TTF ($/GJ) | 7.91 | 10.19 | 10.14 | (22%) | (22%) | 9.02 | 10.23 | (12%) | ||||||||
TTF (€/GJ) | 5.27 | 6.75 | 7.57 | (22%) | (30%) | 6.01 | 7.69 | (22%) | ||||||||
Average foreign currency exchange rates | ||||||||||||||||
CDN $/US $ | 1.09 | 1.10 | 1.02 | (1%) | 7% | 1.10 | 1.02 | 8% | ||||||||
CDN $/Euro | 1.50 | 1.51 | 1.34 | (1%) | 12% | 1.50 | 1.33 | 13% | ||||||||
Average realized prices ($/boe) | ||||||||||||||||
Canada | 71.56 | 69.26 | 62.00 | 3% | 15% | 70.55 | 59.93 | 18% | ||||||||
France | 117.29 | 117.54 | 98.04 | - | 20% | 117.41 | 102.84 | 14% | ||||||||
Netherlands | 48.14 | 63.60 | 65.08 | (24%) | (26%) | 56.06 | 63.19 | (11%) | ||||||||
Germany | 45.36 | 55.85 | - | (19%) | 100% | 49.50 | - | 100% | ||||||||
Australia | 126.87 | 127.26 | 111.54 | - | 14% | 127.11 | 115.89 | 10% | ||||||||
Consolidated | 82.96 | 88.67 | 80.21 | (6%) | 3% | 85.70 | 81.60 | 5% | ||||||||
Production mix (% of production) | ||||||||||||||||
% priced with reference to WTI | 30% | 25% | 25% | 27% | 24% | |||||||||||
% priced with reference to AECO | 18% | 17% | 17% | 18% | 18% | |||||||||||
% priced with reference to TTF | 18% | 19% | 17% | 19% | 17% | |||||||||||
% priced with reference to Dated Brent | 34% | 39% | 41% | 36% | 41% |
Reference prices
Realized prices
FUND FLOWS FROM OPERATIONS
Three Months Ended | Six Months Ended | |||||||||||||||||||
Jun 30, 2014 | Mar 31, 2014 | Jun 30, 2013 | Jun 30, 2014 | Jun 30, 2013 | ||||||||||||||||
$M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe | |||||||||||
Petroleum and natural gas sales | 387,684 | 82.96 | 381,183 | 88.67 | 311,966 | 80.21 | 768,867 | 85.70 | 621,542 | 81.60 | ||||||||||
Royalties | (29,013) | (6.21) | (24,024) | (5.59) | (15,800) | (4.06) | (53,037) | (5.91) | (31,590) | (4.15) | ||||||||||
Petroleum and natural gas revenues | 358,671 | 76.75 | 357,159 | 83.08 | 296,166 | 76.15 | 715,830 | 79.79 | 589,952 | 77.45 | ||||||||||
Transportation expense | (12,032) | (2.57) | (9,861) | (2.29) | (6,653) | (1.71) | (21,893) | (2.44) | (13,294) | (1.75) | ||||||||||
Operating expense | (58,213) | (12.46) | (57,986) | (13.49) | (48,082) | (12.36) | (116,199) | (12.95) | (100,657) | (13.21) | ||||||||||
General and administration | (17,762) | (3.80) | (14,467) | (3.37) | (11,313) | (2.91) | (32,229) | (3.59) | (23,923) | (3.14) | ||||||||||
Corporate income taxes | (32,635) | (6.98) | (38,603) | (8.98) | (36,719) | (9.44) | (71,238) | (7.94) | (72,276) | (9.49) | ||||||||||
PRRT | (12,699) | (2.72) | (20,239) | (4.71) | (12,590) | (3.24) | (32,938) | (3.67) | (23,743) | (3.12) | ||||||||||
Interest expense | (12,334) | (2.64) | (11,460) | (2.67) | (9,336) | (2.40) | (23,794) | (2.65) | (18,025) | (2.37) | ||||||||||
Realized gain (loss) on derivative instruments | 2,419 | 0.52 | 2,640 | 0.61 | 1,770 | 0.46 | 5,059 | 0.56 | (1,017) | (0.13) | ||||||||||
Realized foreign exchange gain (loss) | 587 | 0.12 | (2,041) | (0.47) | 1,272 | 0.33 | (1,454) | (0.16) | 655 | 0.09 | ||||||||||
Realized other income | 74 | 0.02 | 221 | 0.05 | 77 | 0.02 | 295 | 0.03 | 549 | 0.07 | ||||||||||
Fund flows from operations | 216,076 | 46.24 | 205,363 | 47.76 | 174,592 | 44.90 | 421,439 | 46.98 | 338,221 | 44.40 |
The following table shows a reconciliation of the change in fund flows from operations:
($M) | Q2/14 vs. Q1/14 | Q2/14 vs. Q2/13 | 2014 vs. 2013 | ||||
Fund flows from operations - Comparative period | 205,363 | 174,592 | 338,221 | ||||
Sales volume variance: | |||||||
Canada | 39,771 | 44,135 | 63,154 | ||||
France | 7,323 | 6,669 | (4,579) | ||||
Netherlands | (1,936) | 2,166 | 7,799 | ||||
Germany | 4,751 | 11,097 | 20,012 | ||||
Australia | (30,964) | (20,562) | (6,516) | ||||
Pricing variance on sold volumes: | |||||||
WTI | 5,026 | 14,192 | 24,876 | ||||
AECO | (4,717) | 3,983 | 13,772 | ||||
Dated Brent | (447) | 24,639 | 37,907 | ||||
TTF | (12,306) | (10,601) | (9,100) | ||||
Changes in: | |||||||
Realized derivatives | (221) | 649 | 6,076 | ||||
Royalties | (4,989) | (13,213) | (21,447) | ||||
Operating expense | (227) | (10,131) | (15,542) | ||||
Transportation | (2,171) | (5,379) | (8,599) | ||||
Interest | (874) | (2,998) | (5,769) | ||||
General and administration | (3,295) | (6,449) | (8,306) | ||||
Realized other income | (147) | (3) | (254) | ||||
Realized foreign exchange | 2,628 | (685) | (2,109) | ||||
Corporate income taxes | 5,968 | 4,084 | 1,038 | ||||
PRRT | 7,540 | (109) | (9,195) | ||||
Fund flows from operations - Current Period | 216,076 | 216,076 | 421,439 |
Fund flows from operations of $216.1 million during Q2 2014 was an increase of $10.7 million (5%) versus Q1 2014. The majority of this increase resulted from $6.5 million of increased sales. The increase in sales was due to favourable sales volume variances, partially offset by unfavourable pricing variances. Sales volume variances included $39.8 million relating to higher production volumes in Canada following continued development of the Cardium and Mannville plays in Alberta and incremental production from our southeast Saskatchewan acquisition and $7.3 million relating to a draw in inventory in France. These favourable sales volume variances were partially offset by a $31.0 million unfavourable variance relating to a build in inventory in Australia. The unfavourable pricing variance was the result of a quarter-over-quarter decline in natural gas prices, offset partially by an increase in the WTI reference price.
Fund flows from operations increased by 24% and 25% for the three and six months ended June 30, 2014, respectively, versus the comparable periods in 2013. These increases in fund flows from operations resulted primarily from the combined impacts of favourable sales volume and pricing variances. Favourable sales volume variances occurred primarily in Canada (contributing an additional $44.1 million in Q2 2014 and $63.2 million year-to-date 2014 versus the comparable periods) and were aided by incremental production in Germany (contributing $11.1 million in the quarter and $20.0 million in the year-to-date period).
Fluctuations in fund flows from operations (and correspondingly net earnings and cash flows from operating activities) may occur as a result of changes in commodity prices and costs to produce petroleum and natural gas. In addition, fund flows from operations may be highly affected by the timing of crude oil shipments in Australia and France. When crude oil inventory is built up, the related operating expense, royalties, and depletion expense are deferred and carried as inventory on our balance sheet. When the crude oil inventory is subsequently drawn down, the related expenses are recognized in fund flows from operations.
CANADA BUSINESS UNIT
Overview
Operational review
Three Months Ended | % change | Six Months Ended | % change | ||||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||||
Canada business unit | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | |||||||||
Production | |||||||||||||||||
Crude oil (bbls/d) | 12,676 | 9,437 | 8,885 | 34% | 43% | 11,065 | 8,428 | 31% | |||||||||
NGLs (bbls/d) | 2,796 | 2,071 | 1,725 | 35% | 62% | 2,435 | 1,531 | 59% | |||||||||
Natural gas (mmcf/d) | 57.59 | 49.53 | 43.69 | 16% | 32% | 53.58 | 42.37 | 26% | |||||||||
Total (boe/d) | 25,070 | 19,763 | 17,892 | 27% | 40% | 22,430 | 17,021 | 32% | |||||||||
Production mix (% of total) | |||||||||||||||||
Crude oil | 51% | 48% | 50% | 49% | 50% | ||||||||||||
NGLs | 11% | 10% | 10% | 11% | 9% | ||||||||||||
Natural gas | 38% | 42% | 40% | 40% | 41% | ||||||||||||
Activity | |||||||||||||||||
Capital expenditures ($M) | 36,968 | 114,939 | 16,553 | (68%) | 123% | 151,907 | 101,682 | 49% | |||||||||
Acquisitions ($M) | 381,326 | 4,768 | - | 386,094 | - | ||||||||||||
Gross wells drilled | 9.00 | 20.00 | 3.00 | 29.00 | 27.00 | ||||||||||||
Net wells drilled | 3.29 | 14.97 | 1.86 | 18.26 | 24.36 |
Production
Activity review
Cardium
Mannville
Duvernay
Saskatchewan
Financial review
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||
Canada business unit | Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||
($M except as indicated) | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||
Sales | 163,261 | 123,180 | 100,950 | 33% | 62% | 286,441 | 184,638 | 55% | ||||||||
Royalties | (18,240) | (12,663) | (9,707) | 44% | 88% | (30,903) | (18,696) | 65% | ||||||||
Transportation expense | (4,024) | (3,098) | (2,611) | 30% | 54% | (7,122) | (4,880) | 46% | ||||||||
Operating expense | (21,179) | (16,610) | (15,975) | 28% | 33% | (37,789) | (29,816) | 27% | ||||||||
General and administration | (6,560) | (2,868) | (3,948) | 129% | 66% | (9,428) | (7,017) | 34% | ||||||||
Fund flows from operations | 113,258 | 87,941 | 68,709 | 29% | 65% | 201,199 | 124,229 | 62% | ||||||||
Netbacks ($/boe) | ||||||||||||||||
Sales | 71.56 | 69.26 | 62.00 | 3% | 15% | 70.55 | 59.93 | 18% | ||||||||
Royalties | (7.99) | (7.12) | (5.96) | 12% | 34% | (7.61) | (6.07) | 25% | ||||||||
Transportation expense | (1.76) | (1.74) | (1.60) | 1% | 10% | (1.75) | (1.58) | 11% | ||||||||
Operating expense | (9.28) | (9.34) | (9.81) | (1%) | (5%) | (9.31) | (9.68) | (4%) | ||||||||
General and administration | (2.88) | (1.61) | (2.42) | 79% | 19% | (2.32) | (2.28) | 2% | ||||||||
Fund flows from operations netback | 49.65 | 49.45 | 42.21 | - | 18% | 49.56 | 40.32 | 23% | ||||||||
Reference prices | ||||||||||||||||
WTI (US $/bbl) | 102.99 | 98.68 | 94.22 | 4% | 9% | 100.84 | 94.30 | 7% | ||||||||
Edmonton Sweet index (US $/bbl) | 96.85 | 90.43 | 90.56 | 7% | 7% | 93.65 | 88.99 | 5% | ||||||||
AECO ($/GJ) | 4.44 | 5.42 | 3.35 | (18%) | 33% | 4.93 | 3.19 | 55% |
Sales
Royalties
Transportation
Operating expense
General and administration
FRANCE BUSINESS UNIT
Overview
Operational review
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | |||||||||
France business unit | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||
Production | ||||||||||||||||
Crude oil (bbls/d) | 11,025 | 10,771 | 10,390 | 2% | 6% | 10,899 | 10,360 | 5% | ||||||||
Natural gas (mmcf/d) | - | - | 4.19 | - | (100%) | - | 4.20 | (100%) | ||||||||
Total (boe/d) | 11,025 | 10,771 | 11,088 | 2% | (1%) | 10,899 | 11,060 | (1%) | ||||||||
Inventory (mbbls) | ||||||||||||||||
Opening crude oil inventory | 238 | 269 | 218 | 269 | 354 | |||||||||||
Adjustments | - | - | - | - | 5 | |||||||||||
Crude oil production | 1,003 | 969 | 945 | 1,973 | 1,875 | |||||||||||
Crude oil sales | (1,062) | (1,000) | (961) | (2,063) | (2,032) | |||||||||||
Closing crude oil inventory | 179 | 238 | 202 | 179 | 202 | |||||||||||
Production mix (% of total) | ||||||||||||||||
Crude oil | 100% | 100% | 94% | 100% | 94% | |||||||||||
Natural gas | - | - | 6% | - | 6% | |||||||||||
Activity | ||||||||||||||||
Capital expenditures ($M) | 37,614 | 37,967 | 23,223 | (1%) | 62% | 75,581 | 44,815 | 69% | ||||||||
Gross wells drilled | 2.00 | 2.00 | 3.00 | 4.00 | 5.00 | |||||||||||
Net wells drilled | 2.00 | 2.00 | 3.00 | 4.00 | 5.00 |
Production
Activity review
Financial review
Three Months Ended | % change | Six Months Ended | % change | ||||||||||||||
France business unit | Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | |||||||||
($M except as indicated) | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | |||||||||
Sales | 124,617 | 117,560 | 100,418 | 6% | 24% | 242,177 | 221,984 | 9% | |||||||||
Royalties | (7,796) | (7,351) | (6,093) | 6% | 28% | (15,147) | (12,894) | 17% | |||||||||
Transportation expense | (5,385) | (4,753) | (2,416) | 13% | 123% | (10,138) | (5,170) | 96% | |||||||||
Operating expense | (16,550) | (16,420) | (16,935) | 1% | (2%) | (32,970) | (36,874) | (11%) | |||||||||
General and administration | (5,559) | (5,194) | (3,927) | 7% | 42% | (10,753) | (9,613) | 12% | |||||||||
Current income taxes | (24,761) | (25,264) | (16,124) | (2%) | 54% | (50,025) | (34,783) | 44% | |||||||||
Fund flows from operations | 64,566 | 58,578 | 54,923 | 10% | 18% | 123,144 | 122,650 | - | |||||||||
Netbacks ($/boe) | |||||||||||||||||
Sales | 117.29 | 117.54 | 98.04 | - | 20% | 117.41 | 102.84 | 14% | |||||||||
Royalties | (7.34) | (7.35) | (5.95) | - | 23% | (7.34) | (5.97) | 23% | |||||||||
Transportation expense | (5.07) | (4.75) | (2.36) | 7% | 115% | (4.91) | (2.39) | 105% | |||||||||
Operating expense | (15.58) | (16.42) | (16.53) | (5%) | (6%) | (15.98) | (17.08) | (6%) | |||||||||
General and administration | (5.24) | (5.19) | (3.83) | 1% | 37% | (5.21) | (4.45) | 17% | |||||||||
Current income taxes | (23.30) | (25.26) | (15.74) | (8%) | 48% | (24.25) | (16.11) | 51% | |||||||||
Fund flows from operations netback | 60.76 | 58.57 | 53.63 | 4% | 13% | 59.72 | 56.84 | 5% | |||||||||
Reference prices | |||||||||||||||||
Dated Brent (US $/bbl) | 109.63 | 108.22 | 102.44 | 1% | 7% | 108.93 | 107.50 | 1% |
Sales
Royalties
Transportation
Operating expense
General and administration
Current income taxes
NETHERLANDS BUSINESS UNIT
Overview
Operational review
Three Months Ended | % change | Six Months Ended | % change | ||||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||||
Netherlands business unit | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | |||||||||
Production | |||||||||||||||||
NGLs (bbls/d) | 96 | 69 | 50 | 39% | 92% | 83 | 73 | 14% | |||||||||
Natural gas (mmcf/d) | 40.35 | 43.15 | 38.52 | (6%) | 5% | 41.74 | 37.72 | 11% | |||||||||
Total (boe/d) | 6,822 | 7,260 | 6,470 | (6%) | 5% | 7,040 | 6,360 | 11% | |||||||||
Activity | |||||||||||||||||
Capital expenditures ($M) | 21,513 | 20,118 | 4,157 | 7% | 418% | 41,631 | 4,529 | 819% | |||||||||
Gross wells drilled | 2.00 | 2.00 | - | 4.00 | - | ||||||||||||
Net wells drilled | 1.43 | 1.86 | - | 3.29 | - |
Production
Activity review
Financial review
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||||
Netherlands business unit | Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||||
($M except as indicated) | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||||
Sales | 29,881 | 41,554 | 38,316 | (28%) | (22%) | 71,435 | 72,737 | (2%) | ||||||||||
Royalties | (693) | (2,208) | - | (69%) | 100% | (2,901) | - | 100% | ||||||||||
Operating expense | (6,390) | (6,042) | (5,260) | 6% | 21% | (12,432) | (9,229) | 35% | ||||||||||
General and administration | (326) | (598) | (426) | (45%) | (23%) | (924) | (838) | 10% | ||||||||||
Current income taxes | (1,301) | (3,788) | (9,621) | (66%) | (86%) | (5,089) | (19,055) | (73%) | ||||||||||
Fund flows from operations | 21,171 | 28,918 | 23,009 | (27%) | (8%) | 50,089 | 43,615 | 15% | ||||||||||
Netbacks ($/boe) | ||||||||||||||||||
Sales | 48.14 | 63.60 | 65.08 | (24%) | (26%) | 56.06 | 63.19 | (11%) | ||||||||||
Royalties | (1.12) | (3.38) | - | (67%) | 100% | (2.28) | - | 100% | ||||||||||
Operating expense | (10.29) | (9.25) | (8.93) | 11% | 15% | (9.76) | (8.02) | 22% | ||||||||||
General and administration | (0.53) | (0.91) | (0.72) | (42%) | (26%) | (0.73) | (0.73) | - | ||||||||||
Current income taxes | (2.10) | (5.80) | (16.34) | (64%) | (87%) | (3.99) | (16.55) | (76%) | ||||||||||
Fund flows from operations netback | 34.10 | 44.26 | 39.09 | (23%) | (13%) | 39.30 | 37.89 | 4% | ||||||||||
Reference prices | ||||||||||||||||||
TTF ($/GJ) | 7.91 | 10.19 | 10.14 | (22%) | (22%) | 9.02 | 10.23 | (12%) | ||||||||||
TTF (€/GJ) | 5.27 | 6.75 | 7.57 | (22%) | (30%) | 6.01 | 7.69 | (22%) |
Sales
Royalties
Transportation expense
Operating expense
General and administration
Current income taxes
GERMANY BUSINESS UNIT
Overview
Operational review
Three Months Ended | % change | Six Months Ended | |||||||||||||||||
Jun 30, | Mar 31, | Q2/14 vs. | Jun 30, | ||||||||||||||||
Germany business unit | 2014 | 2014 | Q1/14 | 2014 | |||||||||||||||
Production | |||||||||||||||||||
Natural gas (mmcf/d) | 16.13 | 10.64 | 52% | 13.40 | |||||||||||||||
Total (boe/d) | 2,689 | 1,773 | 52% | 2,234 | |||||||||||||||
Activity | |||||||||||||||||||
Capital expenditures ($M) | 630 | 196 | 221% | 826 | |||||||||||||||
Acquisitions ($M) | - | 172,871 | 172,871 |
Production
Activity review
Financial review
Three Months Ended | % change | Six Months Ended | |||||||||
Germany business unit | Jun 30, | Mar 31, | Q2/14 vs. | Jun 30, | |||||||
($M except as indicated) | 2014 | 2014 | Q1/14 | 2014 | |||||||
Sales | 11,097 | 8,915 | 24% | 20,012 | |||||||
Royalties | (2,284) | (1,802) | 27% | (4,086) | |||||||
Transportation expense | (1,052) | (422) | 149% | (1,474) | |||||||
Operating expense | (2,043) | (1,554) | 31% | (3,597) | |||||||
General and administration | (830) | (568) | 46% | (1,398) | |||||||
Current income taxes | (506) | (537) | (6%) | (1,043) | |||||||
Fund flows from operations | 4,382 | 4,032 | 9% | 8,414 | |||||||
Netbacks ($/boe) | |||||||||||
Sales | 45.36 | 55.85 | (19%) | 49.50 | |||||||
Royalties | (9.34) | (11.29) | (17%) | (10.11) | |||||||
Transportation expense | (4.30) | (2.64) | 63% | (3.65) | |||||||
Operating expense | (8.35) | (9.74) | (14%) | (8.90) | |||||||
General and administration | (3.39) | (3.56) | (5%) | (3.46) | |||||||
Current income taxes | (2.07) | (3.36) | (38%) | (2.58) | |||||||
Fund flows from operations netback | 17.91 | 25.26 | (29%) | 20.80 | |||||||
Reference prices | |||||||||||
TTF ($/GJ) | 7.91 | 10.19 | (22%) | 9.02 | |||||||
TTF (€/GJ) | 5.27 | 6.75 | (22%) | 6.01 |
Sales
Royalties expense
Transportation expense
Operating expense
General and administration
Current income taxes
IRELAND BUSINESS UNIT
Overview
Operational and financial review
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||||||||
Ireland business unit | Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | ||||||||||||||
($M) | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||||||||
Transportation expense | (1,571) | (1,588) | (1,626) | (1%) | (3%) | (3,159) | (3,244) | (3%) | ||||||||||||||
General and administration | (252) | (282) | (410) | (11%) | (39%) | (534) | (647) | (17%) | ||||||||||||||
Fund flows from operations | (1,823) | (1,870) | (2,036) | (3%) | (10%) | (3,693) | (3,891) | (5%) | ||||||||||||||
Activity | ||||||||||||||||||||||
Capital expenditures | 27,221 | 16,236 | 24,878 | 68% | 9% | 43,457 | 41,398 | 5% |
Activity review
Transportation expense
AUSTRALIA BUSINESS UNIT
Overview
Operational review
Three Months Ended | % change | Six Months Ended | % change | |||||||||||||||||||
Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | |||||||||||||||
Australia business unit | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | ||||||||||||||
Production | ||||||||||||||||||||||
Crude oil (bbls/d) | 6,483 | 7,110 | 7,363 | (9%) | (12%) | 6,795 | 6,331 | 7% | ||||||||||||||
Inventory (mbbls) | ||||||||||||||||||||||
Opening crude oil inventory | 63 | 130 | 165 | 130 | 268 | |||||||||||||||||
Crude oil production | 590 | 640 | 670 | 1,230 | 1,146 | |||||||||||||||||
Crude oil sales | (464) | (707) | (648) | (1,171) | (1,227) | |||||||||||||||||
Closing crude oil inventory | 189 | 63 | 187 | 189 | 187 | |||||||||||||||||
Activity | ||||||||||||||||||||||
Capital expenditures ($M) | 10,991 | 5,691 | 8,282 | 93% | 33% | 16,682 | 63,631 | (74%) | ||||||||||||||
Gross wells drilled | - | - | - | - | 2.00 | |||||||||||||||||
Net wells drilled | - | - | - | - | 2.00 |
Production
Activity review
Financial review
Three Months Ended | % change | Six Months Ended | % change | ||||||||||||||
Australia business unit | Jun 30, | Mar 31, | Jun 30, | Q2/14 vs. | Q2/14 vs. | Jun 30, | Jun 30, | 2014 vs. | |||||||||
($M except as indicated) | 2014 | 2014 | 2013 | Q1/14 | Q2/13 | 2014 | 2013 | 2013 | |||||||||
Sales | 58,828 | 89,974 | 72,282 | (35%) | (19%) | 148,802 | 142,183 | 5% | |||||||||
Operating expense | (12,051) | (17,360) | (9,912) | (31%) | 22% | (29,411) | (24,738) | 19% | |||||||||
General and administration | (1,661) | (1,206) | (1,378) | 38% | 21% | (2,867) | (2,896) | (1%) | |||||||||
Corporate income taxes | (5,689) | (8,841) | (10,646) | (36%) | (47%) | (14,530) | (17,859) | (19%) | |||||||||
PRRT | (12,699) | (20,239) | (12,590) | (37%) | 1% | (32,938) | (23,743) | 39% | |||||||||
Fund flows from operations | 26,728 | 42,328 | 37,756 | (37%) | (29%) | 69,056 | 72,947 | (5%) | |||||||||
Netbacks ($/boe) | |||||||||||||||||
Sales | 126.87 | 127.26 | 111.54 | - | 14% | 127.11 | 115.89 | 10% | |||||||||
Operating expense | (25.99) | (24.55) | (15.30) | 6% | 70% | (25.12) | (20.16) | 25% | |||||||||
General and administration | (3.58) | (1.71) | (2.13) | 109% | 68% | (2.45) | (2.36) | 4% | |||||||||
Corporate income taxes | (12.27) | (12.51) | (16.43) | (2%) | (25%) | (12.41) | (14.56) | (15%) | |||||||||
PRRT | (27.39) | (28.63) | (19.43) | (4%) | 41% | (28.14) | (19.35) | 45% | |||||||||
Fund flows from operations netback | 57.64 | 59.86 | 58.25 | (4%) | (1%) | 58.99 | 59.46 | (1%) | |||||||||
Reference prices | |||||||||||||||||
Dated Brent (US $/bbl) | 109.63 | 108.22 | 102.44 | 1% | 7% | 108.93 | 107.50 | 1% |
Sales
Royalties and transportation expense
Operating expense
General and administration
PRRT and corporate income taxes
CORPORATE
Overview
Financial review
Three Months Ended | Six Months Ended | ||||||||||||||
Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | |||||||||||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||||||||||
General and administration | (2,574) | (3,751) | (1,224) | (6,325) | (2,912) | ||||||||||
Current income taxes | (378) | (173) | (328) | (551) | (579) | ||||||||||
Interest expense | (12,334) | (11,460) | (9,336) | (23,794) | (18,025) | ||||||||||
Realized gain (loss) on derivatives | 2,419 | 2,640 | 1,770 | 5,059 | (1,017) | ||||||||||
Realized foreign exchange gain (loss) | 587 | (2,041) | 1,272 | (1,454) | 655 | ||||||||||
Realized other income | 74 | 221 | 77 | 295 | 549 | ||||||||||
Fund flows from operations | (12,206) | (14,564) | (7,769) | (26,770) | (21,329) |
General and administration
Current income taxes
Interest expense
Hedging
FINANCIAL PERFORMANCE REVIEW
Three Months Ended | ||||||||||||||||||
Jun 30, | Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Sep 30, | |||||||||||
($M except per share) | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2012 | 2012 | ||||||||||
Petroleum and natural gas sales | 387,684 | 81,183 | 325,108 | 327,185 | 311,966 | 309,576 | 241,233 | 284,838 | ||||||||||
Net earnings | 53,993 | 102,788 | 101,510 | 67,796 | 106,198 | 52,137 | 56,914 | 30,798 | ||||||||||
Net earnings per share | ||||||||||||||||||
Basic | 0.51 | 1.00 | 1.00 | 0.67 | 1.05 | 0.53 | 0.58 | 0.31 | ||||||||||
Diluted | 0.50 | 0.99 | 0.98 | 0.66 | 1.04 | 0.51 | 0.57 | 0.31 |
The following table shows a reconciliation of the change in net earnings:
($M) | Q2/14 vs. Q1/14 | Q2/14 vs. Q2/13 | 2014 vs. 2013 | ||||||||||||
Net earnings - Comparative period | 102,788 | 106,198 | 158,335 | ||||||||||||
Changes in: | |||||||||||||||
Fund flows from operations | 10,713 | 41,484 | 83,218 | ||||||||||||
Equity based compensation | (1,745) | (7,493) | (7,829) | ||||||||||||
Unrealized gain or loss on derivative instruments | (5,456) | (10,172) | (5,124) | ||||||||||||
Unrealized foreign exchange gain or loss | (45,746) | (51,771) | (27,252) | ||||||||||||
Unrealized other income | 358 | 452 | 603 | ||||||||||||
Accretion | (238) | 50 | 162 | ||||||||||||
Depletion and depreciation | (5,450) | (26,484) | (44,488) | ||||||||||||
Deferred tax | (1,231) | 1,729 | (844) | ||||||||||||
Net earnings - Current Period | 53,993 | 53,993 | 156,781 |
The fluctuations in net earnings from quarter-to-quarter and from year-to-year are caused by changes in both cash and non-cash based income and charges. Cash items are reflected in fund flows from operations and include: sales, royalties, operating expenses, transportation, general and administration expense, current tax expense, interest expense, realized gains and losses on derivative instruments, and realized foreign exchange gains and losses. Non-cash items include: equity based compensation expense, unrealized gains and losses on derivative instruments, unrealized foreign exchange gains and losses, accretion, depletion and depreciation expense, and deferred taxes. In addition, non-cash items may also include amounts resulting from acquisitions or charges resulting from impairment or impairment recoveries.
Equity based compensation
Equity based compensation expense relates to non-cash compensation
expense attributable to long-term incentives granted to directors,
officers and employees under the Vermilion Incentive Plan ("VIP"). The
expense is recognized over the vesting period based on the grant date
fair value of awards, adjusted for the ultimate number of awards that
actually vest as determined by the Company's achievement of performance
conditions.
Equity based compensation expense for the three and six months ended June 30, 2014 was higher than the same periods in 2013 as a result of an upward revision of future performance condition assumptions during Q2 2014. Equity based compensation expense is also higher for Q2 2014 as compared to Q1 2014 as the impact of the revision in future performance condition assumptions was partially offset by awards vested during Q2 2014.
Unrealized gain or loss on derivative instruments
Unrealized gain or loss on derivative instruments arise as a result of
changes in forecasted future commodity prices. As Vermilion uses
derivative instruments to manage the commodity price exposure of our
future crude oil and natural gas production, we will normally recognize
unrealized gains on derivative instruments when forecasted future
commodity prices decline and vice-versa.
In the six months ended June 30, 2014, we recognized an unrealized gain of $2.4 million, relating primarily to our TTF derivative instruments, partially offset by our crude oil and Canadian natural gas derivative instruments. As at June 30, 2014, we have a net current derivative liability of approximately $0.2 million.
Unrealized foreign exchange gain or loss
As a result of Vermilion's international operations, Vermilion conducts
business in currencies other than the Canadian dollar and has monetary
assets and liabilities (including cash, receivables, payables,
derivative assets and liabilities, and intercompany loans) denominated
in such currencies. Vermilion's exposure to foreign currencies
includes the US dollar, the Euro and the Australian Dollar.
Unrealized foreign exchange gains and losses are the result of translating monetary assets and liabilities held in non-functional currencies to the respective functional currencies of Vermilion and its subsidiaries. Unrealized foreign exchange primarily results from the translation of Euro denominated financial assets. As such, an appreciation in the Euro against the Canadian dollar will result in an unrealized foreign exchange gain, and vice-versa.
For the three and six months ended June 30, 2014, the Canadian dollar strengthened versus the Euro resulting in unrealized foreign exchange losses of $23.7 million and $1.7 million, respectively.
Accretion
Fluctuations in accretion expense is primarily the result of changes in
discount rates applicable to the balance of asset retirement
obligations and additions resulting from drilling and acquisitions.
Q2 2014 accretion expense was relatively consistent as compared to Q1 2014 and the comparable periods in 2013.
Depletion and depreciation
Fluctuations in depletion and depreciation expense are primarily the
result of changes in produced crude oil and natural gas volumes.
Q2 2014 production as compared to Q1 2014 and the comparable periods in 2013 increased by 12%, 22% and 21%, respectively, resulting in higher depletion and depreciation expense of 5%, 33% and 28%, respectively.
Depletion and depreciation on a per boe basis for Q2 2014 of $22.45/boe was lower as compared to Q1 2014 of $23.13/boe as a result of increased production in Canada. Depletion and depreciation on a per boe basis increased for the three and six month periods ended June 30, 2014 to $22.45/boe and $22.78/boe, respectively, as compared to the same periods in 2013 of $20.16/boe and $20.99/boe, respectively. The increase on a per boe basis was largely due to Vermilion's increased capital and acquisition activity which results in higher per boe amounts as compared to legacy producing assets.
Deferred tax
Deferred tax expense arises primarily as a result of changes in the
accounting basis and tax basis for capital assets and asset retirement
obligations and changes in available tax losses.
FINANCIAL POSITION REVIEW
Balance sheet strategy
We believe that our balance sheet supports our defined growth
initiatives and our focus is on managing and maintaining a conservative
balance sheet. To ensure that our balance sheet continues to support
our defined growth initiatives, we regularly review whether forecasted
fund flows from operations is sufficient to finance planned capital
expenditures, dividends, and abandonment and reclamation expenditures.
To the extent that forecasted fund flows from operations is not
expected to be sufficient to fulfill such expenditures, we will
evaluate our ability to finance any excess with debt (including
borrowing using the unutilized capacity of our existing revolving
credit facility) or issue equity.
To ensure that we maintain a conservative balance sheet, we monitor the ratio of net debt to fund flows from operations and typically strive to maintain an internally targeted ratio of approximately 1.0 to 1.3. In a commodity price environment where prices trend higher, we may target a lower ratio and conversely, in a lower commodity price environment, the acceptable ratio may be higher. At times, we will use our balance sheet to finance acquisitions and, in these situations, we are prepared to accept a higher ratio in the short term but will implement a strategy to reduce the ratio to acceptable levels within a reasonable period of time, usually considered to be no more than 12 to 24 months. This plan could potentially include an increase in hedging activities, a reduction in capital expenditures, an issuance of equity or the utilization of excess fund flows from operations to reduce outstanding indebtedness.
Absent additional material acquisitions, Vermilion currently expects the net debt to fund flows ratio to return to our internally targeted ratio over the next 12 to 24 months as a result of incremental cash flows from Corrib and our acquisitions in Germany and Canada.
Long-term debt
Our long-term debt consists of our revolving credit facility and our
senior unsecured notes. The applicable annual interest rates and the
balances recognized on our balance sheet are as follows:
Annual Interest Rate | As At | ||||||||||||
Jun 30, | Dec 31, | Jun 30, | Dec 31, | ||||||||||
($M) | 2014 | 2013 | 2014 | 2013 | |||||||||
Revolving credit facility | 3.3% | 3.3% | 975,297 | 766,898 | |||||||||
Senior unsecured notes | 6.5% | 6.5% | 223,569 | 223,126 | |||||||||
Long-term debt | 3.9% | 4.7% | 1,198,866 | 990,024 |
Revolving Credit Facility
Our revolving credit facility bears interest at rates applicable to demand loans plus applicable margins. The following table outlines the terms of our revolving credit facility:
As At | ||||||||
Jun 30, | Dec 31, | |||||||
2014 | 2013 | |||||||
Total facility amount 1 | $1.50 billion | $1.20 billion | ||||||
Amount drawn | $975.3 million | $766.9 million | ||||||
Letters of credit outstanding | $10.2 million | $8.1 million | ||||||
Facility maturity date | 31-May-17 | 31-May-16 |
(1) | We may, by adding lenders or seeking an increase to an existing lender's commitment, increase the total committed facility amount to no more than $1.75 billion. |
In addition, the revolving credit facility is subject to the following covenants:
As At | |||||||||||
Jun 30, | Dec 31, | ||||||||||
Financial covenant | Limit | 2014 | 2013 | ||||||||
Consolidated total debt to consolidated EBITDA | 4.0 | 1.17 | 1.06 | ||||||||
Consolidated total senior debt to consolidated EBITDA | 3.0 | 0.95 | 0.82 | ||||||||
Consolidated total senior debt to total capitalization | 50% | 30% | 28% |
Our covenants include financial measures defined within our revolving credit facility agreement that are not defined under GAAP. These financial measures are defined by our revolving credit facility agreement as follows:
Vermilion was in compliance with its financial covenants for all periods presented.
Senior Unsecured Notes
We have outstanding senior unsecured notes that are senior unsecured
obligations and rank pari passu with all our other present and future
unsecured and unsubordinated indebtedness. The following table
outlines the terms of these notes:
Total issued and outstanding amount | $225.0 million | |||||
Interest rate | 6.5% per annum | |||||
Issued date | February 10, 2011 | |||||
Maturity date | February 10, 2016 |
We may redeem all or part of the notes at fixed redemption prices plus in each case, accrued and unpaid interest, if any, to the applicable redemption date. The notes were initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost using an effective interest rate of 7.1%.
Net debt
Net debt is reconciled to its most directly comparable GAAP measure,
long-term debt, as follows:
As At | ||||||
Jun 30, | Dec 31, | |||||
($M) | 2014 | 2013 | ||||
Long-term debt | 1,198,866 | 990,024 | ||||
Current liabilities | 377,710 | 347,444 | ||||
Current assets | (407,578) | (587,783) | ||||
Net debt | 1,168,998 | 749,685 | ||||
Ratio of net debt to annualized fund flows from operations | 1.4 | 1.1 |
Long-term debt as at June 30, 2014 increased to $1.2 billion from $990.0 million as at December 31, 2013 as a result of draws on the revolving credit facility during the current year to fund our acquisitions in Germany and Saskatchewan coupled with the assumption of $47.5 million of long-term debt pursuant to the latter acquisition. This increase in long-term debt resulted in an increase to net debt from $749.7 million to $1.2 billion.
As the increase to long-term debt occurred to fund acquisitions, which contributed to fund flows from operations for only a portion of 2014, the year-to-date ratio of net debt to annualized fund flows from operations increased from 1.1 as at December 31, 2013 to 1.4 as at June 30, 2014.
Shareholders' capital
Beginning with the January 2014 dividend paid on February 18, 2014, we
increased our monthly dividend by 7.5%. This was our second
consecutive annual increase.
During the six months ended June 30, 2014, we maintained monthly dividends at $0.215 per share and declared dividends totalled $134.7 million.
The following table outlines our dividend payment history:
Date | Monthly dividend per unit or share | |||||
January 2003 to December 2007 | $0.17 | |||||
January 2008 to December 2012 | $0.19 | |||||
January 2013 to December 31, 2013 | $0.20 | |||||
Beginning January 2014 | $0.215 |
Our policy with respect to dividends is to be conservative and maintain a low ratio of dividends to fund flows from operations. During low price commodity cycles, we will initially maintain dividends and allow the ratio to rise. Should low commodity price cycles remain for an extended period of time, we will evaluate the necessity of changing the level of dividends, taking into consideration capital development requirements, debt levels and acquisition opportunities.
Over the next two years, we anticipate that Corrib, Cardium and other exploration and development activities will require significant capital investment. Although we currently expect to be able to maintain our current dividend, fund flows from operations may not be sufficient during this period to fund cash dividends, capital expenditures and asset retirement obligations. We will evaluate our ability to finance any shortfalls with debt, issuances of equity or by reducing some or all categories of expenditures to ensure that total expenditures do not exceed available funds.
The following table reconciles the change in shareholders' capital:
Shareholders' Capital | Number of Shares ('000s) | Amount ($M) | ||||||
Balance as at December 31, 2013 | 102,123 | 1,618,443 | ||||||
Shares issued pursuant to corporate acquisition | 2,827 | 204,960 | ||||||
Issuance of shares pursuant to the dividend reinvestment plan | 601 | 38,034 | ||||||
Vesting of equity based awards | 950 | 47,657 | ||||||
Share-settled dividends on vested equity based awards | 108 | 7,519 | ||||||
Shares issued pursuant to the bonus plan | 11 | 721 | ||||||
Balance as at June 30, 2014 | 106,620 | 1,917,334 |
As at June 30, 2014, there were approximately 1.7 million VIP awards outstanding. As at July 30, 2014, there were approximately 106.7 million shares outstanding.
ASSET RETIREMENT OBLIGATIONS
As at June 30, 2014, asset retirement obligations were $390.1 million compared to $326.2 million as at December 31, 2013.
The increase in asset retirement obligations is largely attributable to an overall decrease in the discount rates applied to the abandonment obligations, accretion, and additions from new wells drilled during the year and abandonment obligations associated with the assets acquired in Germany and Canada.
OFF BALANCE SHEET ARRANGEMENTS
We have certain lease agreements that are entered into in the normal course of operations, all of which are operating leases and accordingly no asset or liability value has been assigned to the consolidated balance sheet as at June 30, 2014.
We have not entered into any guarantee or off balance sheet arrangements that would materially impact our financial position or results of operations.
Accounting pronouncements not yet adopted
The impact of the adoption of the following pronouncement is currently being evaluated.
IFRS 15 "Revenue from Contracts with Customers"
On May 28, 2014, the IASB issued IFRS 15 "Revenue from Contracts with
Customers", a new standard that specifies recognition requirements for
revenue as well as requiring entities to provide the users of financial
statements with more informative and relevant disclosures. The
standard replaces IAS 11 "Construction Contracts" and IAS 18 "Revenue"
as well as a number of revenue-related interpretations. Vermilion will
adopt the standard for reporting periods beginning January 1, 2017.
RISK MANAGEMENT
Vermilion is exposed to various market and operational risks. For a detailed discussion of these risks, please see Vermilion's Annual Report for the year ended December 31, 2013.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect reported assets, liabilities, revenues and expenses, gains and losses, and disclosures of any possible contingencies. These estimates and assumptions are developed based on the best available information which management believed to be reasonable at the time such estimates and assumptions were made. As such, these assumptions are uncertain at the time estimates are made and could change, resulting in a material impact on Vermilion's consolidated financial statements. Estimates are reviewed by management on an ongoing basis and as a result may change from period to period due to the availability of new information or changes in circumstances. Additionally, as a result of the unique circumstances of each jurisdiction that Vermilion operates in, the critical accounting estimates may affect one or more jurisdictions.
The following outlines what management believes to be the most critical accounting policies involving the use of estimates and assumptions:
i. | Depletion and depreciation charges are based on estimates of total proven and probable reserves that Vermilion expects to recover in the future. | |
ii. | Asset retirement obligations are based on past experience and current economic factors which management believes are reasonable. | |
iii. | Impairment tests are performed at the cash generating unit (CGU) level, which is determined based on management's judgment. The calculation of the recoverable amount of a CGU is based on market factors as well as estimates of PNG reserves and future costs required to develop reserves. | |
iv. | Deferred tax amounts recognized in the consolidated financial statements are based on management's assessment of the tax positions at the end of each reporting period. |
INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in Vermilion's internal control over financial reporting that occurred during the period covered by this MD&A that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Supplemental Table 1: Netbacks
The following table includes financial statement information on a per unit basis by business unit. Natural gas sales volumes have been converted on a basis of six thousand cubic feet of natural gas to one barrel of oil equivalent.
Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 |
Three Months Ended June 30, 2013 |
Six Months Ended June 30, 2013 |
|||||||||||||
Oil & NGLs | Natural Gas | Total | Oil & NGLs | Natural Gas | Total | Total | Total | |||||||||
$/bbl | $/mcf | $/boe | $/bbl | $/mcf | $/boe | $/boe | $/boe | |||||||||
Canada | ||||||||||||||||
Sales | 98.82 | 4.60 | 71.56 | 97.30 | 5.02 | 70.55 | 62.00 | 59.93 | ||||||||
Royalties | (11.84) | (0.30) | (7.99) | (11.38) | (0.32) | (7.61) | (5.96) | (6.07) | ||||||||
Transportation | (2.22) | (0.17) | (1.76) | (2.24) | (0.17) | (1.75) | (1.60) | (1.58) | ||||||||
Operating | (9.29) | (1.55) | (9.28) | (10.01) | (1.37) | (9.31) | (9.81) | (9.68) | ||||||||
Operating netback | 75.47 | 2.58 | 52.53 | 73.67 | 3.16 | 51.88 | 44.63 | 42.60 | ||||||||
General and administration | (2.88) | (2.32) | (2.42) | (2.28) | ||||||||||||
Fund flows from operations netback | 49.65 | 49.56 | 42.21 | 40.32 | ||||||||||||
France | ||||||||||||||||
Sales | 117.29 | - | 117.29 | 117.41 | - | 117.41 | 98.04 | 102.84 | ||||||||
Royalties | (7.34) | - | (7.34) | (7.34) | - | (7.34) | (5.95) | (5.97) | ||||||||
Transportation | (5.07) | - | (5.07) | (4.91) | - | (4.91) | (2.36) | (2.39) | ||||||||
Operating | (15.58) | - | (15.58) | (15.98) | - | (15.98) | (16.53) | (17.08) | ||||||||
Operating netback | 89.30 | - | 89.30 | 89.18 | - | 89.18 | 73.20 | 77.40 | ||||||||
General and administration | (5.24) | (5.21) | (3.83) | (4.45) | ||||||||||||
Current income taxes | (23.30) | (24.25) | (15.74) | (16.11) | ||||||||||||
Fund flows from operations netback | 60.76 | 59.72 | 53.63 | 56.84 | ||||||||||||
Netherlands | ||||||||||||||||
Sales | 93.76 | 7.91 | 48.14 | 99.23 | 9.26 | 56.06 | 65.08 | 63.19 | ||||||||
Royalties | - | (0.19) | (1.12) | - | (0.38) | (2.28) | - | - | ||||||||
Operating | - | (1.74) | (10.29) | - | (1.65) | (9.76) | (8.93) | (8.02) | ||||||||
Operating netback | 93.76 | 5.98 | 36.73 | 99.23 | 7.23 | 44.02 | 56.15 | 55.17 | ||||||||
General and administration | (0.53) | (0.73) | (0.72) | (0.73) | ||||||||||||
Current income taxes | (2.10) | (3.99) | (16.34) | (16.55) | ||||||||||||
Fund flows from operations netback | 34.10 | 39.30 | 39.09 | 37.89 | ||||||||||||
Germany | ||||||||||||||||
Sales | - | 7.56 | 45.36 | - | 8.25 | 49.50 | - | - | ||||||||
Royalties | - | (1.56) | (9.34) | - | (1.68) | (10.11) | - | - | ||||||||
Transportation | - | (0.72) | (4.30) | - | (0.61) | (3.65) | - | - | ||||||||
Operating | - | (1.39) | (8.35) | - | (1.48) | (8.90) | - | - | ||||||||
Operating netback | - | 3.89 | 23.37 | - | 4.48 | 26.84 | - | - | ||||||||
General and administration | (3.39) | (3.46) | - | - | ||||||||||||
Current income taxes | (2.07) | (2.58) | - | - | ||||||||||||
Fund flows from operations netback | 17.91 | 20.80 | - | - | ||||||||||||
Australia | ||||||||||||||||
Sales | 126.87 | - | 126.87 | 127.11 | - | 127.11 | 111.54 | 115.89 | ||||||||
Operating | (25.99) | - | (25.99) | (25.12) | - | (25.12) | (15.30) | (20.16) | ||||||||
PRRT (1) | (27.39) | - | (27.39) | (28.14) | - | (28.14) | (19.43) | (19.35) | ||||||||
Operating netback | 73.49 | - | 73.49 | 73.85 | - | 73.85 | 76.81 | 76.38 | ||||||||
General and administration | (3.58) | (2.45) | (2.13) | (2.36) | ||||||||||||
Corporate income taxes | (12.27) | (12.41) | (16.43) | (14.56) | ||||||||||||
Fund flows from operations netback | 57.64 | 58.99 | 58.25 | 59.46 | ||||||||||||
Total Company | ||||||||||||||||
Sales | 109.89 | 6.19 | 82.96 | 110.73 | 7.04 | 85.70 | 80.21 | 81.60 | ||||||||
Realized hedging (loss) gain | (0.66) | 0.42 | 0.52 | (0.21) | 0.32 | 0.56 | 0.46 | (0.13) | ||||||||
Royalties | (8.31) | (0.44) | (6.21) | (7.54) | (0.51) | (5.91) | (4.06) | (4.15) | ||||||||
Transportation | (2.89) | (0.34) | (2.57) | (2.74) | (0.32) | (2.44) | (1.71) | (1.75) | ||||||||
Operating | (14.16) | (1.59) | (12.46) | (15.26) | (1.49) | (12.95) | (12.36) | (13.21) | ||||||||
PRRT (1) | (4.32) | - | (2.72) | (5.79) | - | (3.67) | (3.24) | (3.12) | ||||||||
Operating netback | 79.55 | 4.24 | 59.52 | 79.19 | 5.04 | 61.29 | 59.30 | 59.24 | ||||||||
General and administration | (3.80) | (3.59) | (2.91) | (3.14) | ||||||||||||
Interest expense | (2.64) | (2.65) | (2.40) | (2.37) | ||||||||||||
Realized foreign exchange gain (loss) | 0.12 | (0.16) | 0.33 | 0.09 | ||||||||||||
Other income | 0.02 | 0.03 | 0.02 | 0.07 | ||||||||||||
Corporate income taxes (1) | (6.98) | (7.94) | (9.44) | (9.49) | ||||||||||||
Fund flows from operations netback | 46.24 | 46.98 | 44.90 | 44.40 |
(1) | Vermilion considers Australian PRRT to be an operating item and accordingly has included PRRT in the calculation of operating netbacks. Current income taxes presented above excludes PRRT. |
Supplemental Table 2: Hedges
The following table summarizes Vermilion's outstanding risk management positions as at June 30, 2014:
Note | Volume | Strike Price(s) | ||||
Crude Oil | ||||||
WTI - Swap | ||||||
May 2014 - July 2014 | 1 | 500 bbl/d | 101.12 CAD $ | |||
July 2014 - December 2014 | 750 bbl/d | 99.00 USD $ | ||||
July 2014 | 1,000 bbl/d | 99.95 USD $ | ||||
July 2014 | 2 | 1,000 bbl/d | 103.63 USD $ | |||
July 2014 - September 2014 | 1,250 bbl/d | 108.53 CAD $ | ||||
July 2014 - September 2014 | 3 | 1,250 bbl/d | 101.33 USD $ | |||
May 2014 - November 2014 | 1 | 250 bbl/d | 97.25 CAD $ | |||
Dated Brent - Collar | ||||||
April 2014 - September 2014 | 1,000 bbl/d | 105.00 - 112.00 USD $ | ||||
April 2014 - December 2014 | 1,000 bbl/d | 106.00 - 110.73 USD $ | ||||
Dated Brent - Swap | ||||||
January 2014 - December 2014 | 500 bbl/d | 108.28 USD $ | ||||
July 2014 - September 2014 | 350 bbl/d | 111.75 USD $ | ||||
July 2014 - September 2014 | 3 | 1,000 bbl/d | 110.00 USD $ | |||
July 2014 - December 2014 | 1,000 bbl/d | 109.64 USD $ | ||||
July 2014 - December 2014 | 4 | 500 bbl/d | 109.40 USD $ | |||
ICE Brent less WTI - Fixed Spread | ||||||
July 2014 - September 2014 | 500 bbl/d | 5.99 USD $ | ||||
MSW - Fixed Price Differential (Physical) | ||||||
April 2014 - December 2014 | 1,030 bbl/d | WTI less 8.20 USD $ | ||||
July 2014 - December 2014 | 2,052 bbl/d | WTI less 8.68 USD $ | ||||
Canadian Natural Gas | ||||||
AECO - Collar | ||||||
January 2014 - December 2014 | 10,000 GJ/d | 3.18 - 3.81 CAD $ | ||||
April 2014 - December 2014 | 1,000 GJ/d | 3.60 - 3.96 CAD $ | ||||
April 2014 - March 2015 | 2,500 GJ/d | 3.60 - 4.08 CAD $ | ||||
November 2014 - March 2015 | 2,500 GJ/d | 3.60 - 4.27 CAD $ | ||||
AECO - Swap | ||||||
January 2014 - December 2014 | 5,000 GJ/d | 3.71 CAD $ | ||||
April 2014 - October 2014 | 8,000 GJ/d | 4.00 CAD $ | ||||
European Natural Gas | ||||||
TTF - Swap | ||||||
March 2014 - September 2014 | 5,400 GJ/d | 6.62 EUR € | ||||
April 2014 - September 2014 | 16,200 GJ/d | 6.74 EUR € | ||||
Electricity | ||||||
AESO - Swap | ||||||
January 2014 - December 2014 | 7.2 MWh/d | 54.75 CAD $ | ||||
AESO - Swap (Physical) | ||||||
January 2013 - December 2015 | 72.0 MWh/d | 53.17 CAD $ | ||||
US Dollar | ||||||
USD - Collar | ||||||
July 2014 - September 2014 | 5,000,000 USD $/month | 1.070 - 1.116 CAD $ | ||||
July 2014 - September 2014 | 5 | 4,500,000 USD $/month | 1.077 - 1.099 CAD $ |
(1) | Assumed as part of Vermilion's April 29, 2014 acquisition of Elkhorn Resources Inc. |
(2) | Prior to the expiration of this swap, the counterparty has the option to extend the swap to August 31, 2014 at the contracted volume and price. |
(3) | Prior to the expiration of this swap, the counterparty has the option to extend the swap to December 31, 2014 at the contracted volume and price. |
(4) | Prior to the expiration of this swap, the counterparty has the option to extend the swap to June 30, 2015 at the contracted volume and price. |
(5) | Vermilion has upside participation on this hedge up to the limit price of 1.152 CAD; above which, settlement will occur at the conditional call level of 1.099CAD. |
Supplemental Table 3: Capital Expenditures
Three Months Ended | Six Months Ended | ||||||
By classification | Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | ||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||
Drilling and development | 117,975 | 168,840 | 75,005 | 286,815 | 254,525 | ||
Dispositions | - | - | - | - | (8,627) | ||
Exploration and evaluation | 17,098 | 27,535 | 3,113 | 44,633 | 12,689 | ||
Capital expenditures | 135,073 | 196,375 | 78,118 | 331,448 | 258,587 | ||
Property acquisition | - | 178,227 | - | 178,227 | - | ||
Corporate acquisition | 381,139 | - | - | 381,139 | - | ||
Acquisitions | 381,139 | 178,227 | - | 559,366 | - | ||
Three Months Ended | Six Months Ended | ||||||
By category | Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | ||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||
Land | 950 | 4,753 | 2,307 | 5,703 | 5,436 | ||
Seismic | 1,869 | 3,432 | 5,569 | 5,301 | 9,382 | ||
Drilling and completion | 42,083 | 106,536 | 20,235 | 148,619 | 146,420 | ||
Production equipment and facilities | 60,547 | 68,755 | 40,819 | 129,302 | 90,761 | ||
Recompletions | 13,459 | 4,226 | 4,510 | 17,685 | 8,641 | ||
Other | 16,165 | 8,673 | 4,678 | 24,838 | 6,574 | ||
Dispositions | - | - | - | - | (8,627) | ||
Capital expenditures | 135,073 | 196,375 | 78,118 | 331,448 | 258,587 | ||
Acquisitions | 381,139 | 178,227 | - | 559,366 | - | ||
Total capital expenditures and acquisitions | 516,212 | 374,602 | 78,118 | 890,814 | 258,587 | ||
Three Months Ended | Six Months Ended | ||||||
By country | Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | ||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||
Canada | 418,294 | 119,707 | 16,553 | 538,001 | 101,682 | ||
France | 37,614 | 37,967 | 23,223 | 75,581 | 44,815 | ||
Netherlands | 21,513 | 20,118 | 4,157 | 41,631 | 4,529 | ||
Germany | 630 | 173,067 | - | 173,697 | - | ||
Ireland | 27,221 | 16,236 | 24,878 | 43,457 | 41,398 | ||
Australia | 10,991 | 5,691 | 8,282 | 16,682 | 63,631 | ||
Corporate | (51) | 1,816 | 1,025 | 1,765 | 2,532 | ||
Total capital expenditures and acquisitions | 516,212 | 374,602 | 78,118 | 890,814 | 258,587 |
Supplemental Table 4: Production
Q2/14 | Q1/14 | Q4/13 | Q3/13 | Q2/13 | Q1/13 | Q4/12 | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | ||||||||||||||
Canada | |||||||||||||||||||||||||
Crude oil (bbls/d) | 12,676 | 9,437 | 8,719 | 7,969 | 8,885 | 7,966 | 7,983 | 7,322 | 7,757 | 7,574 | 6,591 | 4,526 | |||||||||||||
NGLs (bbls/d) | 2,796 | 2,071 | 1,699 | 1,897 | 1,725 | 1,335 | 1,106 | 1,204 | 1,321 | 1,302 | 1,246 | 1,305 | |||||||||||||
Natural gas (mmcf/d) | 57.59 | 49.53 | 41.43 | 43.40 | 43.69 | 41.04 | 31.41 | 35.54 | 41.32 | 41.83 | 43.96 | 42.94 | |||||||||||||
Total (boe/d) | 25,070 | 19,763 | 17,322 | 17,099 | 17,892 | 16,140 | 14,323 | 14,449 | 15,965 | 15,848 | 15,163 | 12,987 | |||||||||||||
% of consolidated | 49% | 42% | 43% | 41% | 42% | 41% | 40% | 40% | 40% | 40% | 41% | 38% | |||||||||||||
France | |||||||||||||||||||||||||
Crude oil (bbls/d) | 11,025 | 10,771 | 11,131 | 11,625 | 10,390 | 10,330 | 9,843 | 9,767 | 9,931 | 10,270 | 7,819 | 7,946 | |||||||||||||
Natural gas (mmcf/d) | - | - | - | 5.23 | 4.19 | 4.21 | 3.91 | 3.39 | 3.57 | 3.48 | 0.94 | 0.97 | |||||||||||||
Total (boe/d) | 11,025 | 10,771 | 11,131 | 12,496 | 11,088 | 11,032 | 10,495 | 10,333 | 10,526 | 10,850 | 7,976 | 8,108 | |||||||||||||
% of consolidated | 21% | 23% | 27% | 30% | 26% | 29% | 29% | 28% | 27% | 28% | 22% | 23% | |||||||||||||
Netherlands | |||||||||||||||||||||||||
NGLs (bbls/d) | 96 | 69 | 62 | 48 | 50 | 96 | 70 | 41 | 84 | 72 | 66 | 64 | |||||||||||||
Natural gas (mmcf/d) | 40.35 | 43.15 | 37.53 | 28.78 | 38.52 | 36.91 | 33.03 | 34.59 | 33.74 | 35.08 | 34.58 | 33.15 | |||||||||||||
Total (boe/d) | 6,822 | 7,260 | 6,318 | 4,845 | 6,470 | 6,248 | 5,574 | 5,806 | 5,707 | 5,919 | 5,829 | 5,589 | |||||||||||||
% of consolidated | 13% | 16% | 15% | 12% | 15% | 16% | 15% | 16% | 15% | 15% | 16% | 16% | |||||||||||||
Germany | |||||||||||||||||||||||||
Natural gas (mmcf/d) | 16.13 | 10.64 | - | - | - | - | - | - | - | - | - | - | |||||||||||||
Total (boe/d) | 2,689 | 1,773 | - | - | - | - | - | - | - | - | - | - | |||||||||||||
% of consolidated | 5% | 4% | - | - | - | - | - | - | - | - | - | - | |||||||||||||
Australia | |||||||||||||||||||||||||
Crude oil (bbls/d) | 6,483 | 7,110 | 6,189 | 7,070 | 7,363 | 5,287 | 5,873 | 5,958 | 6,970 | 6,648 | 7,686 | 7,992 | |||||||||||||
% of consolidated | 12% | 15% | 15% | 17% | 17% | 14% | 16% | 16% | 18% | 17% | 21% | 23% | |||||||||||||
Consolidated | |||||||||||||||||||||||||
Crude oil & NGLs (bbls/d) | 33,076 | 29,458 | 27,800 | 28,609 | 28,413 | 25,014 | 24,875 | 24,292 | 26,063 | 25,866 | 23,408 | 21,833 | |||||||||||||
% of consolidated | 63% | 63% | 68% | 69% | 66% | 65% | 69% | 66% | 67% | 66% | 64% | 63% | |||||||||||||
Natural gas (mmcf/d) | 114.08 | 103.32 | 78.96 | 77.41 | 86.40 | 82.16 | 68.34 | 73.52 | 78.63 | 80.39 | 79.48 | 77.06 | |||||||||||||
% of consolidated | 37% | 37% | 32% | 31% | 34% | 35% | 31% | 34% | 33% | 34% | 36% | 37% | |||||||||||||
Total (boe/d) | 52,089 | 46,677 | 40,960 | 41,510 | 42,813 | 38,707 | 36,265 | 36,546 | 39,168 | 39,265 | 36,654 | 34,676 | |||||||||||||
YTD 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
Canada | |||||||||||||||||||||||||
Crude oil (bbls/d) | 11,065 | 8,387 | 7,659 | 4,701 | 2,778 | 2,137 | |||||||||||||||||||
NGLs (bbls/d) | 2,435 | 1,666 | 1,232 | 1,297 | 1,427 | 1,518 | |||||||||||||||||||
Natural gas (mmcf/d) | 53.58 | 42.39 | 37.50 | 43.38 | 43.91 | 47.85 | |||||||||||||||||||
Total (boe/d) | 22,430 | 17,117 | 15,142 | 13,227 | 11,524 | 11,629 | |||||||||||||||||||
% of consolidated | 45% | 41% | 40% | 38% | 36% | 37% | |||||||||||||||||||
France | |||||||||||||||||||||||||
Crude oil (bbls/d) | 10,899 | 10,873 | 9,952 | 8,110 | 8,347 | 8,246 | |||||||||||||||||||
Natural gas (mmcf/d) | - | 3.40 | 3.59 | 0.95 | 0.92 | 1.05 | |||||||||||||||||||
Total (boe/d) | 10,899 | 11,440 | 10,550 | 8,269 | 8,501 | 8,421 | |||||||||||||||||||
% of consolidated | 22% | 28% | 28% | 23% | 26% | 27% | |||||||||||||||||||
Netherlands | |||||||||||||||||||||||||
NGLs (bbls/d) | 83 | 64 | 67 | 58 | 35 | 23 | |||||||||||||||||||
Natural gas (mmcf/d) | 41.74 | 35.42 | 34.11 | 32.88 | 28.31 | 21.06 | |||||||||||||||||||
Total (boe/d) | 7,040 | 5,967 | 5,751 | 5,538 | 4,753 | 3,533 | |||||||||||||||||||
% of consolidated | 14% | 15% | 15% | 16% | 15% | 11% | |||||||||||||||||||
Germany | |||||||||||||||||||||||||
Natural gas (mmcf/d) | 13.40 | - | - | - | - | - | |||||||||||||||||||
Total (boe/d) | 2,234 | - | - | - | - | - | |||||||||||||||||||
% of consolidated | 5% | - | - | - | - | - | |||||||||||||||||||
Australia | |||||||||||||||||||||||||
Crude oil (bbls/d) | 6,795 | 6,481 | 6,360 | 8,168 | 7,354 | 7,812 | |||||||||||||||||||
% of consolidated | 14% | 16% | 17% | 23% | 23% | 25% | |||||||||||||||||||
Consolidated | |||||||||||||||||||||||||
Crude oil & NGLs (bbls/d) | 31,277 | 27,471 | 25,270 | 22,334 | 19,941 | 19,735 | |||||||||||||||||||
% of consolidated | 63% | 67% | 67% | 63% | 62% | 63% | |||||||||||||||||||
Natural gas (mmcf/d) | 108.73 | 81.21 | 75.20 | 77.21 | 73.14 | 69.96 | |||||||||||||||||||
% of consolidated | 37% | 33% | 33% | 37% | 38% | 37% | |||||||||||||||||||
Total (boe/d) | 49,398 | 41,005 | 37,803 | 35,202 | 32,132 | 31,395 |
Supplemental Table 5: Segmented Financial Results
Three Months Ended June 30, 2014 | |||||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | |||||||||
Drilling and development | 26,071 | 34,828 | 18,234 | 630 | 27,221 | 10,991 | - | 117,975 | |||||||||
Exploration and evaluation | 10,897 | 2,786 | 3,279 | - | - | - | 136 | 17,098 | |||||||||
Oil and gas sales to external customers | 163,261 | 124,617 | 29,881 | 11,097 | - | 58,828 | - | 387,684 | |||||||||
Royalties | (18,240) | (7,796) | (693) | (2,284) | - | - | - | (29,013) | |||||||||
Revenue from external customers | 145,021 | 116,821 | 29,188 | 8,813 | - | 58,828 | - | 358,671 | |||||||||
Transportation expense | (4,024) | (5,385) | - | (1,052) | (1,571) | - | - | (12,032) | |||||||||
Operating expense | (21,179) | (16,550) | (6,390) | (2,043) | - | (12,051) | - | (58,213) | |||||||||
General and administration | (6,560) | (5,559) | (326) | (830) | (252) | (1,661) | (2,574) | (17,762) | |||||||||
PRRT | - | - | - | - | - | (12,699) | - | (12,699) | |||||||||
Corporate income taxes | - | (24,761) | (1,301) | (506) | - | (5,689) | (378) | (32,635) | |||||||||
Interest expense | - | - | - | - | - | - | (12,334) | (12,334) | |||||||||
Realized gain on derivative instruments | - | - | - | - | - | - | 2,419 | 2,419 | |||||||||
Realized foreign exchange gain | - | - | - | - | - | - | 587 | 587 | |||||||||
Realized other income | - | - | - | - | - | - | 74 | 74 | |||||||||
Fund flows from operations | 113,258 | 64,566 | 21,171 | 4,382 | (1,823) | 26,728 | (12,206) | 216,076 |
Six Months Ended June 30, 2014 | ||||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | ||||||||
Total assets | 1,854,501 | 916,712 | 235,723 | 174,735 | 799,394 | 277,624 | 125,726 | 4,384,415 | ||||||||
Drilling and development | 127,744 | 64,681 | 33,425 | 826 | 43,457 | 16,682 | - | 286,815 | ||||||||
Exploration and evaluation | 24,163 | 10,900 | 8,206 | - | - | - | 1,364 | 44,633 | ||||||||
Oil and gas sales to external customers | 286,441 | 242,177 | 71,435 | 20,012 | - | 148,802 | - | 768,867 | ||||||||
Royalties | (30,903) | (15,147) | (2,901) | (4,086) | - | - | - | (53,037) | ||||||||
Revenue from external customers | 255,538 | 227,030 | 68,534 | 15,926 | - | 148,802 | - | 715,830 | ||||||||
Transportation expense | (7,122) | (10,138) | - | (1,474) | (3,159) | - | - | (21,893) | ||||||||
Operating expense | (37,789) | (32,970) | (12,432) | (3,597) | - | (29,411) | - | (116,199) | ||||||||
General and administration | (9,428) | (10,753) | (924) | (1,398) | (534) | (2,867) | (6,325) | (32,229) | ||||||||
PRRT | - | - | - | - | - | (32,938) | - | (32,938) | ||||||||
Corporate income taxes | - | (50,025) | (5,089) | (1,043) | - | (14,530) | (551) | (71,238) | ||||||||
Interest expense | - | - | - | - | - | - | (23,794) | (23,794) | ||||||||
Realized gain on derivative instruments | - | - | - | - | - | - | 5,059 | 5,059 | ||||||||
Realized foreign exchange loss | - | - | - | - | - | - | (1,454) | (1,454) | ||||||||
Realized other income | - | - | - | - | - | - | 295 | 295 | ||||||||
Fund flows from operations | 201,199 | 123,144 | 50,089 | 8,414 | (3,693) | 69,056 | (26,770) | 421,439 |
ADDITIONAL AND NON-GAAP FINANCIAL MEASURES
This MD&A includes references to certain financial measures which do not have standardized meanings prescribed by IFRS. As such, these financial measures are considered additional GAAP or non-GAAP financial measures and therefore may not be comparable with similar measures presented by other issuers.
Fund flows from operations: We define fund flows from operations as cash flows from operating activities before changes in non-cash operating working capital and asset retirement obligations settled. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, fund flows from operations provides a measure of our ability to generate cash (that is not subject to short-term movements in non-cash operating working capital) necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. As we have presented fund flows from operations in the "Segmented Information" note of our unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2014, we consider fund flows from operations to be an additional GAAP financial measure.
Free cash flow: Represents fund flows from operations in excess of capital expenditures. We consider free cash flow to be a key measure as it is used to determine the funding available for investing and financing activities, including payment of dividends, repayment of long-term debt, reallocation to existing business units, and deployment into new ventures.
Net dividends: We define net dividends as dividends declared less proceeds received for the issuance of shares pursuant to the dividend reinvestment plan. Management monitors net dividends and net dividends as a percentage of fund flows from operations to assess our ability to pay dividends.
Payout: We define payout as net dividends plus drilling and development, exploration and evaluation, dispositions and asset retirement obligations settled. Management uses payout to assess the amount of cash distributed back to shareholders and re-invested in the business for maintaining production and organic growth.
Fund flows from operations (excluding Corrib) and Payout (excluding Corrib): Management excludes expenditures relating to the Corrib project in assessing fund flows from operations (an additional GAAP financial measure) and payout in order to assess our ability to generate cash and finance organic growth from our current producing assets.
Net debt: We define net debt as the sum of long-term debt and working capital. Management uses net debt, and the ratio of net debt to fund flows from operations, to analyze our financial position and leverage. Please refer to the preceding "Net Debt" section for a reconciliation of the net debt non-GAAP financial measure.
Diluted shares outstanding: Is the sum of shares outstanding at the period end plus outstanding awards under the VIP, based on current estimates of future performance factors and forfeiture rates.
Cash dividends per share: Represents cash dividends declared per share.
Netbacks: Per boe and per mcf measures used in the analysis of operational activities.
Total returns: Includes cash dividends per share and the change in Vermilion's share price on the Toronto Stock Exchange.
The following tables reconcile fund flows from operations, net dividends, payout, and diluted shares outstanding to their most directly comparable GAAP measures as presented in our financial statements:
|
Three Months Ended |
Six Months Ended |
|||||||||||
|
Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | ||||||||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||||||||
Cash flows from operating activities | 149,592 | 178,238 | 179,074 | 327,830 | 369,786 | ||||||||
Changes in non-cash operating working capital | 64,103 | 24,474 | (6,852) | 88,577 | (35,323) | ||||||||
Asset retirement obligations settled | 2,381 | 2,651 | 2,370 | 5,032 | 3,758 | ||||||||
Fund flows from operations | 216,076 | 205,363 | 174,592 | 421,439 | 338,221 | ||||||||
Expenses related to Corrib | 1,823 | 1,870 | 2,036 | 3,693 | 3,891 | ||||||||
Fund flows from operations (excluding Corrib) | 217,899 | 207,233 | 176,628 | 425,132 | 342,112 |
|
|
Three Months Ended |
|
Six Months Ended | |||
Jun 30, | Mar 31, | Jun 30, | Jun 30, | Jun 30, | |||
($M) | 2014 | 2014 | 2013 | 2014 | 2013 | ||
Dividends declared | 68,710 | 66,007 | 60,776 | 134,717 | 120,388 | ||
Issuance of shares pursuant to the dividend reinvestment plan | (19,149) | (18,885) | (18,630) | (38,034) | (34,162) | ||
Net dividends | 49,561 | 47,122 | 42,146 | 96,683 | 86,226 | ||
Drilling and development | 117,975 | 168,840 | 75,005 | 286,815 | 254,525 | ||
Dispositions | - | - | - | - | (8,627) | ||
Exploration and evaluation | 17,098 | 27,535 | 3,113 | 44,633 | 12,689 | ||
Asset retirement obligations settled | 2,381 | 2,651 | 2,370 | 5,032 | 3,758 | ||
Payout | 187,015 | 246,148 | 122,634 | 433,163 | 348,571 | ||
Corrib drilling and development | (27,221) | (16,236) | (24,878) | (43,457) | (41,398) | ||
Payout (excluding Corrib) | 159,794 | 229,912 | 97,756 | 389,706 | 307,173 |
As At | |||
('000s of shares) |
Jun 30, 2014 |
Mar 31, 2014 |
Jun 30, 2013 |
Shares outstanding | 106,620 | 102,453 | 101,418 |
Potential shares issuable pursuant to the VIP | 2,751 | 2,714 | 2,317 |
Diluted shares outstanding | 109,371 | 105,167 | 103,735 |
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
June 30, | December 31, | |||
Note | 2014 | 2013 | |||
ASSETS | |||||
Current | |||||
Cash and cash equivalents | 165,497 | 389,559 | |||
Accounts receivable |
|
199,251 | 167,618 | ||
Crude oil inventory | 17,952 | 17,143 | |||
Derivative instruments | 7,624 | 2,285 | |||
Prepaid expenses | 17,254 | 11,178 | |||
407,578 | 587,783 | ||||
Deferred taxes | 148,173 | 184,832 | |||
Exploration and evaluation assets | 5 | 332,122 | 136,259 | ||
Capital assets | 4 | 3,496,542 | 2,799,845 | ||
4,384,415 | 3,708,719 | ||||
|
|
||||
LIABILITIES |
|
||||
Current | |||||
Accounts payable and accrued liabilities | 264,249 | 267,832 | |||
Dividends payable | 8 | 22,923 | 20,425 | ||
Derivative instruments | 7,787 | 3,572 | |||
Income taxes payable | 82,751 | 55,615 | |||
377,710 | 347,444 | ||||
Long-term debt | 7 | 1,198,866 | 990,024 | ||
Asset retirement obligations | 6 | 390,054 | 326,162 | ||
Deferred taxes | 401,317 | 328,714 | |||
2,367,947 | 1,992,344 | ||||
|
|||||
SHAREHOLDERS' EQUITY | |||||
Shareholders' capital | 8 | 1,917,334 | 1,618,443 | ||
Contributed surplus | 59,343 | 75,427 | |||
Accumulated other comprehensive income | 49,883 | 47,142 | |||
Deficit | (10,092) | (24,637) | |||
2,016,468 | 1,716,375 | ||||
4,384,415 | 3,708,719 | ||||
CONSOLIDATED STATEMENTS OF NET EARNINGS AND COMPREHENSIVE INCOME
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS,
UNAUDITED)
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
Jun 30, | Jun 30, | Jun 30, | Jun 30, | ||||||
Note | 2014 | 2013 | 2014 | 2013 | |||||
REVENUE | |||||||||
Petroleum and natural gas sales | 387,684 | 311,966 | 768,867 | 621,542 | |||||
Royalties | (29,013) | (15,800) | (53,037) | (31,590) | |||||
Petroleum and natural gas revenue | 358,671 | 296,166 | 715,830 | 589,952 | |||||
EXPENSES |
|
||||||||
Operating | 58,213 | 48,082 | 116,199 | 100,657 | |||||
Transportation | 12,032 | 6,653 | 21,893 | 13,294 | |||||
Equity based compensation | 9 | 18,217 | 10,724 | 34,689 | 26,860 | ||||
Gain on derivative instruments | (898) | (10,421) | (7,473) | (6,521) | |||||
Interest expense |
|
12,334 | 9,336 | 23,794 | 18,025 | ||||
General and administration |
|
17,762 | 11,313 | 32,229 | 23,923 | ||||
Foreign exchange loss (gain) |
|
23,159 | (29,297) | 3,200 | (26,161) | ||||
Other (income) expense | (178) | 271 | (145) | 204 | |||||
Accretion | 6 | 5,950 | 6,000 | 11,662 | 11,824 | ||||
Depletion and depreciation | 4, 5 | 104,902 | 78,418 | 204,354 | 159,866 | ||||
|
251,493 | 131,079 | 440,402 | 321,971 | |||||
EARNINGS BEFORE INCOME TAXES | 107,178 | 165,087 |
|
275,428 |
|
267,981 | |||
INCOME TAXES | |||||||||
Deferred | 7,851 | 9,580 | 14,471 | 13,627 | |||||
Current | 45,334 | 49,309 | 104,176 | 96,019 | |||||
53,185 | 58,889 | 118,647 | 109,646 | ||||||
NET EARNINGS | 53,993 | 106,198 | 156,781 | 158,335 | |||||
|
|
|
|
||||||
OTHER COMPREHENSIVE (LOSS) INCOME |
|
|
|
||||||
Currency translation adjustments | (42,794) | 18,955 | 2,741 | 17,623 | |||||
COMPREHENSIVE INCOME | 11,199 | 125,153 | 159,522 | 175,958 | |||||
NET EARNINGS PER SHARE |
|
||||||||
Basic | 0.51 | 1.05 | 1.51 | 1.58 | |||||
Diluted | 0.50 | 1.04 | 1.49 | 1.56 | |||||
WEIGHTED AVERAGE SHARES OUTSTANDING ('000s) | |||||||||
Basic | 105,577 | 100,964 | 103,936 | 100,137 | |||||
Diluted | 107,330 | 102,223 | 105,531 | 101,578 | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
Three Months Ended |
|
Six Months Ended |
|||||||
|
Jun 30, | Jun 30, | Jun 30, | Jun 30, | ||||||
Note |
|
2014 | 2013 | 2014 | 2013 | |||||
OPERATING | ||||||||||
Net earnings | 53,993 | 106,198 | 156,781 | 158,335 | ||||||
Adjustments: |
|
|
||||||||
Accretion | 6 | 5,950 | 6,000 | 11,662 | 11,824 | |||||
|
Depletion and depreciation | 4, 5 | 104,902 | 78,418 | 204,354 | 159,866 | ||||
|
Unrealized loss (gain) on derivative instruments |
|
1,521 | (8,651) | (2,414) | (7,538) | ||||
|
Equity based compensation | 9 | 18,217 | 10,724 | 34,689 | 26,860 | ||||
|
Unrealized foreign exchange loss (gain) |
|
|
23,746 | (28,025) | 1,746 | (25,506) | |||
|
Unrealized other (income) expense | (104) | 348 | 150 | 753 | |||||
|
Deferred taxes | 7,851 | 9,580 | 14,471 | 13,627 | |||||
Asset retirement obligations settled | 6 | (2,381) | (2,370) | (5,032) | (3,758) | |||||
Changes in non-cash operating working capital | (64,103) | 6,852 |
|
(88,577) | 35,323 | |||||
Cash flows from operating activities | 149,592 | 179,074 | 327,830 | 369,786 | ||||||
INVESTING |
|
|||||||||
Drilling and development | 4 | (117,975) | (75,005) | (286,815) | (254,525) | |||||
Exploration and evaluation | 5 | (17,098) | (3,113) | (44,633) | (12,689) | |||||
Property acquisitions | 3, 4, 5 | - |
|
- | (178,227) | - | ||||
Dispositions | 4 | - | - | - | 8,627 | |||||
Corporate acquisitions, net of cash acquired | 3 | (176,179) | - | (176,179) | - | |||||
Changes in non-cash investing working capital | (24,010) | (75,613) | 15,463 |
(37,403) |
||||||
Cash flows used in investing activities | (335,262) | (153,731) | (670,391) | (295,990) | ||||||
|
||||||||||
FINANCING |
|
|||||||||
Increase in long-term debt | 255,727 | 70,000 | 205,727 | 139,429 | ||||||
Cash dividends | (48,665) | (41,754) | (94,185) | (84,778) | ||||||
Cash flows from financing activities | 207,062 | 28,246 | 111,542 | 54,651 | ||||||
Foreign exchange (loss) gain on cash held in foreign currencies | (7,232) | 5,496 | 6,957 | 5,026 | ||||||
|
||||||||||
Net change in cash and cash equivalents | 14,160 | 59,085 | (224,062) | 133,473 | ||||||
Cash and cash equivalents, beginning of period | 151,337 | 176,513 | 389,559 | 102,125 | ||||||
Cash and cash equivalents, end of period | 165,497 | 235,598 | 165,497 | 235,598 | ||||||
|
|
|||||||||
Supplementary information for operating activities - cash payments |
|
|||||||||
|
Interest paid | 11,721 | 8,417 | 25,815 | 20,509 | |||||
|
Income taxes paid | 56,486 | 18,669 | 77,560 | 51,304 | |||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
Accumulated |
|
||||||||||
Other | Total | ||||||||||
Shareholders' | Contributed | Comprehensive | Shareholders' | ||||||||
Note | Capital | Surplus | Loss | Deficit | Equity | ||||||
Balances as at January 1, 2013 | 1,481,345 | 69,581 | (32,409) | (99,871) | 1,418,646 | ||||||
Net earnings | - | - | - | 158,335 | 158,335 | ||||||
Currency translation adjustments | - | - | 17,623 | - | 17,623 | ||||||
Equity based compensation expense | 9 | - | 26,231 | - | - | 26,231 | |||||
Dividends declared | 8 | - | - | - | (120,388) | (120,388) | |||||
Shares issued pursuant to the |
|
|
|||||||||
dividend reinvestment plan | 8 | 34,162 | - | - | - | 34,162 | |||||
Vesting of equity based awards | 8, 9 | 54,370 | (54,370) | - | - | - | |||||
Share-settled dividends | |||||||||||
on vested equity based awards | 8, 9 | 9,808 | - | - | (9,808) | - | |||||
Shares issued pursuant to the bonus plan | 8 | 629 | - | - | - | 629 | |||||
Balances as at June 30, 2013 | 1,580,314 | 41,442 | (14,786) | (71,732) | 1,535,238 | ||||||
|
|||||||||||
Accumulated | |||||||||||
Other | Total | ||||||||||
Shareholders' | Contributed | Comprehensive | Shareholders' | ||||||||
Note | Capital | Surplus | Income | Deficit | Equity | ||||||
Balances as at January 1, 2014 | 1,618,443 | 75,427 | 47,142 | (24,637) | 1,716,375 | ||||||
Net earnings | - | - | - | 156,781 | 156,781 | ||||||
Currency translation adjustments |
|
- | - | 2,741 | - | 2,741 | |||||
Equity based compensation expense | 9 | - | 33,968 | - | - | 33,968 | |||||
Dividends declared | 8 | - | - | - | (134,717) | (134,717) | |||||
Shares issued pursuant to the | |||||||||||
dividend reinvestment plan | 8 | 38,034 | - | - | - | 38,034 | |||||
Shares issued pursuant to | |||||||||||
corporate acquisition | 3 | 204,960 | - | - | - | 204,960 | |||||
Modification of equity based awards | 9 | - | (2,395) | (2,395) | |||||||
Vesting of equity based awards | 8, 9 | 47,657 | (47,657) | - | - | - | |||||
Share-settled dividends | |||||||||||
on vested equity based awards | 8, 9 | 7,519 | - | - | (7,519) | - | |||||
Shares issued pursuant to the bonus plan | 8 | 721 | - | - | - | 721 | |||||
Balances as at June 30, 2014 | 1,917,334 | 59,343 | 49,883 | (10,092) | 2,016,468 | ||||||
DESCRIPTION OF EQUITY RESERVES
Shareholders' capital
Represents the recognized amount for common shares when issued, net of
equity issuance costs and deferred taxes.
Contributed surplus
Represents the recognized value of employee awards which are settled in
shares. Once vested, the value of the awards is transferred to
shareholders' capital.
Accumulated other comprehensive income
Represents the cumulative income and expenses which are not recorded
immediately in net earnings and are accumulated until an event triggers
recognition in net earnings. The current balance consists of currency
translation adjustments resulting from translating financial statements
of subsidiaries with a foreign functional currency to Canadian dollars
at period-end rates.
Deficit
Represents the cumulative net earnings less distributed earnings of
Vermilion Energy Inc.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER
SHARE AMOUNTS, UNAUDITED)
1. BASIS OF PRESENTATION
Vermilion Energy Inc. (the "Company" or "Vermilion") is a corporation governed by the laws of the Province of Alberta and is actively engaged in the business of crude oil and natural gas exploration, development, acquisition and production.
These condensed consolidated interim financial statements are in compliance with IAS 34, "Interim financial reporting" and have been prepared using the same accounting policies and methods of computation as Vermilion's consolidated financial statements for the year ended December 31, 2013, except as discussed in Note 2.
These condensed consolidated interim financial statements should be read in conjunction with Vermilion's consolidated financial statements for the year ended December 31, 2013, which are contained within Vermilion's Annual Report for the year ended December 31, 2013 and are available on SEDAR at www.sedar.com or on Vermilion's website at www.vermilionenergy.com.
These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors of Vermilion on July 30, 2014.
2. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2014, Vermilion adopted the following pronouncements as issued by the IASB. The adoption of these standards did not have a material impact on Vermilion's consolidated financial statements.
IFRIC 21 "Levies"
On May 20, 2013, the IASB issued guidance under IFRIC 21, which provides clarification on accounting for levies in accordance with the requirements of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets". The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that a liability for a levy is recognized only when the triggering event specified in the legislation occurs. The interpretation is effective for annual periods beginning on or after January 1, 2014.
IAS 36 "Impairment of Assets"
On May 29, 2013, the IASB issued amendments to IAS 36 "Impairment of Assets" which reduce the circumstances in which the recoverable amount of CGUs is required to be disclosed and clarify the disclosures required when an impairment loss has been recognized or reversed in the period. This amendment is effective for annual periods beginning on or after January 1, 2014.
Accounting pronouncements not yet adopted
The impact of the adoption of the following pronouncement is currently being evaluated.
IFRS 15 "Revenue from Contracts with Customers"
On May 28, 2014, the IASB issued IFRS 15 "Revenue from Contracts with Customers", a new standard that specifies recognition requirements for revenue as well as requiring entities to provide the users of financial statements with more informative and relevant disclosures. The standard replaces IAS 11 "Construction Contracts" and IAS 18 "Revenue" as well as a number of revenue-related interpretations. Vermilion will adopt the standard for reporting periods beginning January 1, 2017.
3. BUSINESS COMBINATIONS
Property acquisition:
Germany
In February of 2014, Vermilion acquired, through a wholly-owned subsidiary, GDF's 25% interest in four producing natural gas fields and a surrounding exploration license located in northwest Germany. GDF is an affiliate of GDF Suez S.A., a publicly traded, French multinational utility. The acquisition represents Vermilion's entry into the German E&P business, a producing region with a long history of oil and gas development activity, low political risk and strong marketing fundamentals. The acquisition is well aligned with Vermilion's European focus, and will increase its exposure to the strong fundamentals and pricing of the European natural gas markets. The acquisition closed in February of 2014 for cash proceeds of $172.9 million. Vermilion funded this acquisition with existing credit facilities.
The acquired assets comprise of four gas producing fields across eleven production licenses and include both exploration and production licenses that comprise a total of 207,000 gross acres, of which 85% is in the exploration license.
The acquisition has been accounted for as a business combination with the fair value of the assets acquired and liabilities assumed at the date of acquisition summarized as follows:
($M) | Consideration | |
Cash paid to vendor | 172,871 | |
Total consideration | 172,871 | |
|
||
($M) | Allocation of Consideration | |
Petroleum and natural gas assets | 158,840 | |
Exploration and evaluation | 16,065 | |
Asset retirement obligations assumed | (2,030) | |
Deferred tax liabilities | (4) | |
Net assets acquired | 172,871 |
The results of operations from the assets acquired have been included in Vermilion's consolidated financial statements beginning February of 2014 and have contributed revenues of $20.0 million and net earnings $0.4 million for the six months ended June 30, 2014.
Had the acquisition occurred on January 1, 2014, management estimates that consolidated revenues would have increased by an additional $4.6 million and consolidated net earnings would have increased by $0.9 million for the six months ended June 30, 2014.
Corporate acquisition:
Elkhorn Resources Inc.
On April 29, 2014, Vermilion acquired Elkhorn Resources Inc., a private southeast Saskatchewan producer. The acquisition creates a new core area for Vermilion in the Williston Basin.
The acquired assets 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. Vermilion funded this acquisition with existing credit facilities.
Total consideration was comprised of $180.4 million of cash and the issuance of 2.8 million Vermilion common shares valued at approximately $205.0 million (based on the closing price per Vermilion common share of $72.50 on the Toronto Stock Exchange on April 29, 2014).
The acquisition has been accounted for as a business combination with the fair value of the assets acquired and liabilities assumed at the date of acquisition summarized as follows:
($M) | Consideration | |
Cash paid to shareholders of Elkhorn Resources Inc. | 180,353 | |
Shares issued pursuant to corporate acquisition | 204,960 | |
Total consideration | 385,313 | |
($M) | Allocation of Consideration | |
Petroleum and natural gas assets | 390,523 | |
Exploration and evaluation | 138,264 | |
Asset retirement obligations assumed | (5,974) | |
Deferred tax liabilities | (89,437) | |
Long-term debt assumed | (47,526) | |
Cash acquired | 4,174 | |
Acquired non-cash working capital deficiency | (4,711) | |
Net assets acquired (1) | 385,313 |
(1) | The above amounts are estimates made by management at the time of the preparation of these condensed consolidated interim financial statements based on information then available. Amendments may be made as amounts subject to estimates are finalized. |
The results of operations from the assets acquired have been included in Vermilion's consolidated financial statements beginning April 29, 2014 and have contributed revenues of $16.0 million and operating income of $13.0 million for the six months ended June 30, 2014.
Had the acquisition occurred on January 1, 2014, management estimates that consolidated revenues would have increased by an additional $8.8 million and consolidated operating income would have increased by $7.0 million for the six months ended June 30, 2014. In determining the pro-forma amounts, management has assumed that the fair value adjustments, determined provisionally, that arose at the date of acquisition would have been the same if the acquisition had occurred on January 1, 2014. It is impracticable to derive all amounts necessary to determine the increase to net earnings from the acquisition as the acquired company was immediately merged with Vermilion's operations.
4. CAPITAL ASSETS
The following table reconciles the change in Vermilion's capital assets:
Petroleum and | Furniture and | Total | ||||
($M) | Natural Gas Assets | Office Equipment | Capital Assets | |||
Balance at January 1, 2013 | 2,430,121 | 15,119 | 2,445,240 | |||
Additions | 531,760 | 5,804 | 537,564 | |||
Transfers from exploration and evaluation assets | 1,508 | 1,508 | ||||
Corporate acquisitions | 47,743 | 47,743 | ||||
Dispositions | (8,627) | (8,627) | ||||
Changes in estimate for asset retirement obligations | (91,527) | (91,527) | ||||
Depletion and depreciation | (310,370) | (6,138) | (316,508) | |||
Impairments | 47,400 |
|
47,400 | |||
Effect of movements in foreign exchange rates | 136,626 | 426 | 137,052 | |||
Balance at December 31, 2013 | 2,784,634 | 15,211 | 2,799,845 | |||
Additions | 284,616 | 2,199 | 286,815 | |||
Property acquisitions | 163,599 | 163,599 | ||||
Corporate acquisitions | 390,523 | 390,523 | ||||
Changes in estimate for asset retirement obligations | 46,998 | 46,998 | ||||
Depletion and depreciation | (199,050) | (1,908) | (200,958) | |||
Effect of movements in foreign exchange rates | 9,632 | 88 | 9,720 | |||
Balance at June 30, 2014 | 3,480,952 | 15,590 | 3,496,542 |
5. EXPLORATION AND EVALUATION ASSETS
The following table reconciles the change in Vermilion's exploration and evaluation assets:
($M) | Exploration and Evaluation Assets | ||
Balance at January 1, 2013 | 117,161 | ||
Additions | 13,789 | ||
Property acquisitions | 9,189 | ||
Transfers to petroleum and natural gas assets | (1,508) | ||
Depreciation | (3,712) | ||
Effect of movements in foreign exchange rates | 1,340 | ||
Balance at December 31, 2013 | 136,259 | ||
Additions | 44,633 | ||
Changes in estimate for asset retirement obligations | 85 | ||
Property acquisitions | 16,662 | ||
Corporate acquisitions | 138,264 | ||
Depreciation | (3,098) | ||
Effect of movements in foreign exchange rates | (683) | ||
Balance at June 30, 2014 | 332,122 | ||
6. ASSET RETIREMENT OBLIGATIONS
The following table reconciles the change in Vermilion's asset retirement obligations:
($M) | Asset Retirement Obligations | ||
Balance at January 1, 2013 | 371,063 | ||
Additional obligations recognized | 15,655 | ||
Changes in estimates for existing obligations | (21,068) | ||
Obligations settled | (11,922) | ||
Accretion | 24,565 | ||
Changes in discount rates | (73,675) | ||
Effect of movements in foreign exchange rates | 21,544 | ||
Balance at December 31, 2013 | 326,162 | ||
Additional obligations recognized | 18,675 | ||
Obligations settled | (5,032) | ||
Accretion | 11,662 | ||
Changes in discount rates | 36,412 | ||
Effect of movements in foreign exchange rates | 2,175 | ||
Balance at June 30, 2014 | 390,054 |
7. LONG-TERM DEBT
The following table summarizes Vermilion's outstanding long-term debt:
As At | ||||
($M) | June 30, 2014 | Dec 31, 2013 | ||
Revolving credit facility | 975,297 | 766,898 | ||
Senior unsecured notes | 223,569 | 223,126 | ||
Long-term debt | 1,198,866 | 990,024 |
Revolving Credit Facility
At June 30, 2014, Vermilion had in place a bank revolving credit facility totalling $1.5 billion, of which approximately $975.3 million was drawn. In addition, Vermilion may, by adding lenders or seeking an increase to an existing lender's commitment, increase the total committed facility amount to no more than $1.75 billion. The facility, which matures on May 31, 2017, is fully revolving up to the date of maturity.
The facility is extendable from time to time, but not more than once per year, for a period not longer than three years, at the option of the lenders and upon notice from Vermilion. If no extension is granted by the lenders, the amounts owing pursuant to the facility are repayable on the maturity date. This facility bears interest at a rate applicable to demand loans plus applicable margins. For the six months ended June 30, 2014, the interest rate on the revolving credit facility was approximately 3.1%.
The amount available to Vermilion under this facility is reduced by certain outstanding letters of credit associated with Vermilion's operations totalling $10.2 million as at June 30, 2014 (December 31, 2013 - $8.1 million).
The facility is secured by various fixed and floating charges against the subsidiaries of Vermilion. Under the terms of the facility, Vermilion must maintain:
As at June 30, 2014, Vermilion was in compliance with its financial covenants.
Senior Unsecured Notes
On February 10, 2011, Vermilion issued $225.0 million of senior unsecured notes at par. The notes bear interest at a rate of 6.5% per annum and will mature on February 10, 2016. As direct senior unsecured obligations of Vermilion, the notes rank pari passu with all other present and future unsecured and unsubordinated indebtedness of the Company.
Vermilion may redeem all or part of the notes at fixed redemption prices, plus accrued and unpaid interest, if any, to the applicable redemption date. The notes were initially recognized at fair value net of transaction costs and are subsequently measured at amortized cost using an effective interest rate of 7.1%.
8. SHAREHOLDERS' CAPITAL
The following table reconciles the change in Vermilion's shareholders' capital:
Shareholders' Capital | Number of Shares ('000s) | Amount ($M) | ||
Balance as at January 1, 2013 | 99,135 | 1,481,345 | ||
Shares issued pursuant to the dividend reinvestment plan | 1,402 | 72,291 | ||
Vesting of equity based awards | 1,372 | 54,370 | ||
Share-settled dividends on vested equity based awards | 202 | 9,808 | ||
Shares issued pursuant to the bonus plan | 12 | 629 | ||
Balance as at December 31, 2013 | 102,123 | 1,618,443 | ||
Shares issued pursuant to corporate acquisition | 2,827 | 204,960 | ||
Shares issued pursuant to the dividend reinvestment plan | 601 | 38,034 | ||
Vesting of equity based awards | 950 | 47,657 | ||
Share-settled dividends on vested equity based awards | 108 | 7,519 | ||
Shares issued pursuant to the bonus plan | 11 | 721 | ||
Balance as at June 30, 2014 | 106,620 | 1,917,334 |
Dividends declared to shareholders for the six months ended June 30, 2014 were $134.7 million (2013 - $120.4 million).
Subsequent to the end of the period and prior to the condensed consolidated interim financial statements being authorized for issue on July 30, 2014, Vermilion declared dividends totalling $22.9 million or $0.215 per share.
9. EQUITY BASED COMPENSATION
The following table summarizes the number of awards outstanding under the Vermilion Incentive Plan ("VIP"):
Number of Awards ('000s) | 2014 | 2013 | |
Opening balance | 1,665 | 1,690 | |
Granted | 563 | 832 | |
Vested | (512) | (749) | |
Modified | (21) | - | |
Forfeited | (21) | (108) | |
Closing balance | 1,674 | 1,665 |
The fair value of a VIP award is determined on the grant date at the closing price of Vermilion's common shares on the Toronto Stock Exchange, adjusted by the estimated performance factor that will ultimately be achieved.
On March 31, 2014, Vermilion modified the accounting for certain outstanding VIP awards to be settled by purchasing Vermilion common shares on the Toronto Stock Exchange upon vesting rather than by issuing common shares through treasury. Pursuant to this modification, $2.4 million was reclassified from "Contributed surplus" to "Accounts payable and accrued liabilities". Subsequent period expense relating to these outstanding awards will be recognized in "General and administration expense".
10. SEGMENTED INFORMATION
Vermilion has operations principally in Canada, France, the Netherlands, Germany, Ireland, and Australia. Vermilion's operating activities in each country relate solely to the exploration, development and production of petroleum and natural gas. Vermilion has a Corporate head office located in Calgary, Alberta. Costs incurred in the Corporate segment relate to Vermilion's global hedging program and expenses incurred in financing and managing our operating business units.
Vermilion's chief operating decision maker reviews the financial performance of the Company by assessing the fund flows from operations of each country individually. Fund flows from operations provides a measure of each business unit's ability to generate cash (that is not subject to short-term movements in non-cash operating working capital) necessary to pay dividends, fund asset retirement obligations, and make capital investments.
Three Months Ended June 30, 2014 | |||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | |||||||
Drilling and development | 26,071 | 34,828 | 18,234 | 630 | 27,221 | 10,991 | - | 117,975 | |||||||
Exploration and evaluation | 10,897 | 2,786 | 3,279 | - | - | - | 136 | 17,098 | |||||||
Oil and gas sales to external customers | 163,261 | 124,617 | 29,881 |
|
11,097 | - | 58,828 | - | 387,684 | ||||||
Royalties | (18,240) | (7,796) | (693) |
|
(2,284) | - | - | - | (29,013) | ||||||
Revenue from external customers | 145,021 | 116,821 | 29,188 |
|
8,813 | - | 58,828 | - | 358,671 | ||||||
Transportation expense | (4,024) | (5,385) | - |
|
(1,052) | (1,571) | - | - | (12,032) | ||||||
Operating expense | (21,179) | (16,550) | (6,390) |
|
(2,043) | - | (12,051) | - | (58,213) | ||||||
General and administration | (6,560) | (5,559) | (326) |
|
(830) | (252) | (1,661) | (2,574) | (17,762) | ||||||
PRRT | - | - | - | - | - | (12,699) | - | (12,699) | |||||||
Corporate income taxes | - | (24,761) | (1,301) | (506) | - | (5,689) | (378) | (32,635) | |||||||
Interest expense | - | - | - | - | - | - | (12,334) | (12,334) | |||||||
Realized gain on derivative instruments | - | - | - | - | - | - | 2,419 | 2,419 | |||||||
Realized foreign exchange gain | - | - | - | - | - | - | 587 | 587 | |||||||
Realized other income | - | - | - | - | - | - | 74 | 74 | |||||||
Fund flows from operations | 113,258 | 64,566 | 21,171 | 4,382 | (1,823) | 26,728 | (12,206) | 216,076 | |||||||
Three Months Ended June 30, 2013 | |||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | |||||||
Drilling and development | 14,059 | 23,223 | 4,157 | - | 24,878 | 8,282 | 406 | 75,005 | |||||||
Exploration and evaluation | 2,494 | - | - | - | - | - | 619 | 3,113 | |||||||
Oil and gas sales to external customers | 100,950 | 100,418 | 38,316 | - | - | 72,282 | - | 311,966 | |||||||
Royalties | (9,707) | (6,093) | - | - | - | - | - | (15,800) | |||||||
Revenue from external customers | 91,243 | 94,325 | 38,316 | - | - | 72,282 | - | 296,166 | |||||||
Transportation expense | (2,611) | (2,416) | - | - | (1,626) | - | - | (6,653) | |||||||
Operating expense | (15,975) | (16,935) | (5,260) | - | - | (9,912) | - | (48,082) | |||||||
General and administration | (3,948) | (3,927) | (426) | - | (410) | (1,378) | (1,224) | (11,313) | |||||||
PRRT | - | - | - | - | - | (12,590) | - | (12,590) | |||||||
Corporate income taxes | - | (16,124) | (9,621) | - | - | (10,646) | (328) | (36,719) | |||||||
Interest expense | - | - | - | - | - | - | (9,336) | (9,336) | |||||||
Realized gain on derivative instruments | - | - | - | - | - | - | 1,770 | 1,770 | |||||||
Realized foreign exchange gain | - | - | - | - | - | - | 1,272 | 1,272 | |||||||
Realized other income | - | - | - | - | - | - | 77 | 77 | |||||||
Fund flows from operations | 68,709 | 54,923 | 23,009 | - | (2,036) | 37,756 | (7,769) | 174,592 | |||||||
Six Months Ended June 30, 2014 | |||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | |||||||
Total assets | 1,854,501 | 916,712 | 235,723 | 174,735 | 799,394 | 277,624 | 125,726 | 4,384,415 | |||||||
Drilling and development | 127,744 | 64,681 | 33,425 | 826 | 43,457 | 16,682 | - | 286,815 | |||||||
Exploration and evaluation | 24,163 | 10,900 | 8,206 | - | - | - | 1,364 | 44,633 | |||||||
Oil and gas sales to external customers | 286,441 | 242,177 | 71,435 | 20,012 | - | 148,802 | - | 768,867 | |||||||
Royalties | (30,903) | (15,147) | (2,901) | (4,086) | - | - | - | (53,037) | |||||||
Revenue from external customers | 255,538 | 227,030 | 68,534 | 15,926 | - | 148,802 | - | 715,830 | |||||||
Transportation expense | (7,122) | (10,138) | - | (1,474) | (3,159) | - | - | (21,893) | |||||||
Operating expense | (37,789) | (32,970) | (12,432) | (3,597) | - | (29,411) | - | (116,199) | |||||||
General and administration | (9,428) | (10,753) | (924) | (1,398) | (534) | (2,867) | (6,325) | (32,229) | |||||||
PRRT | - | - | - | - | - | (32,938) | - | (32,938) | |||||||
Corporate income taxes | - | (50,025) | (5,089) | (1,043) | - | (14,530) | (551) | (71,238) | |||||||
Interest expense | - | - | - | - | - | - | (23,794) | (23,794) | |||||||
Realized gain on derivative instruments | - | - | - | - | - | - | 5,059 | 5,059 | |||||||
Realized foreign exchange loss | - | - |
|
- | - | - | - | (1,454) | (1,454) | ||||||
Realized other income | - | - | - | - | - | - | 295 | 295 | |||||||
Fund flows from operations | 201,199 | 123,144 | 50,089 | 8,414 | (3,693) | 69,056 | (26,770) | 421,439 | |||||||
|
Six Months Ended June 30, 2013 | ||||||||||||||
($M) | Canada | France | Netherlands | Germany | Ireland | Australia | Corporate | Total | |||||||
Total assets | 1,105,026 |
|
873,242 | 142,317 | - | 646,366 | 311,415 | 220,641 | 3,299,007 | ||||||
Drilling and development | 96,800 | 44,815 | 6,156 | - | 41,398 | 63,631 | 1,725 | 254,525 | |||||||
Exploration and evaluation | 11,882 | - | - | - | - | - | 807 | 12,689 | |||||||
Oil and gas sales to external customers | 184,638 | 221,984 | 72,737 | - | - | 142,183 | - | 621,542 | |||||||
Royalties | (18,696) | (12,894) | - | - | - | - | - | (31,590) | |||||||
Revenue from external customers | 165,942 | 209,090 | 72,737 | - | - | 142,183 | - | 589,952 | |||||||
Transportation expense | (4,880) | (5,170) | - | - | (3,244) | - | - | (13,294) | |||||||
Operating expense | (29,816) | (36,874) | (9,229) | - | - | (24,738) | - | (100,657) | |||||||
General and administration | (7,017) | (9,613) | (838) | - | (647) | (2,896) | (2,912) | (23,923) | |||||||
PRRT | - | - | - | - | - | (23,743) | - | (23,743) | |||||||
Corporate income taxes | - | (34,783) | (19,055) | - | - | (17,859) | (579) | (72,276) | |||||||
Interest expense | - | - | - | - | - | - | (18,025) | (18,025) | |||||||
Realized loss on derivative instruments | - | - | - | - | - | - | (1,017) | (1,017) | |||||||
Realized foreign exchange gain | - | - | - | - | - | - | 655 | 655 | |||||||
Realized other income | - | - | - | - | - | - | 549 | 549 | |||||||
Fund flows from operations | 124,229 | 122,650 | 43,615 | - | (3,891) | 72,947 | (21,329) | 338,221 |
Reconciliation of fund flows from operations to net earnings
Three Months Ended | Six Months Ended | ||||
Jun 30, | Jun 30, | Jun 30, | Jun 30, | ||
($M) | 2014 | 2013 |
|
2014 |
2013 |
Fund flows from operations | 216,076 | 174,592 | 421,439 | 338,221 | |
Equity based compensation | (18,217) | (10,724) | (34,689) | (26,860) | |
Unrealized (loss) gain on derivative instruments | (1,521) | 8,651 | 2,414 | 7,538 | |
Unrealized foreign exchange (loss) gain | (23,746) | 28,025 | (1,746) | 25,506 | |
Unrealized other income (expense) | 104 | (348) | (150) | (753) | |
Accretion | (5,950) | (6,000) | (11,662) | (11,824) | |
Depletion and depreciation | (104,902) | (78,418) | (204,354) | (159,866) | |
Deferred taxes | (7,851) | (9,580) | (14,471) | (13,627) | |
Net earnings | 53,993 | 106,198 | 156,781 | 158,335 | |
11. CAPITAL DISCLOSURES
Three Months Ended | Six Months Ended | ||||
($M except as indicated) | June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |
Long-term debt | 1,198,866 | 780,470 | 1,198,866 | 780,470 | |
Current liabilities | 377,710 | 325,912 | 377,710 | 325,912 | |
Current assets | (407,578) | (432,014) | (407,578) | (432,014) | |
Net debt [1] | 1,168,998 | 674,368 | 1,168,998 | 674,368 | |
Cash flows from operating activities | 149,592 | 179,074 | 327,830 | 369,786 | |
Changes in non-cash operating working capital | 64,103 | (6,852) | 88,577 | (35,323) | |
Asset retirement obligations settled | 2,381 | 2,370 | 5,032 | 3,758 | |
Fund flows from operations | 216,076 | 174,592 | 421,439 | 338,221 | |
Annualized fund flows from operations [2] | 864,304 | 698,368 | 842,878 | 676,442 | |
Ratio of net debt to annualized fund flows from operations ([1] ÷ [2]) | 1.4 | 1.0 | 1.4 | 1.0 |
Long-term debt as at June 30, 2014 increased to $1.2 billion from $990.0 million as at December 31, 2013 as a result of draws on the revolving credit facility during the current year to fund the acquisitions in Germany and Saskatchewan coupled with the assumption of $47.5 million of long-term debt pursuant to the latter acquisition. This increase in long-term debt resulted in an increase to net debt from $749.7 million to $1.2 billion.
As year-to-date fund flows includes only 2 months of contribution from the acquisition in Saskatchewan, the ratio of net debt to annualized fund flows increased to 1.4.
12. FINANCIAL INSTRUMENTS
Classification of Financial Instruments
The following table summarizes information relating to Vermilion's financial instruments as at June 30, 2014 and December 31, 2013:
|
|
As at Jun 30, 2014 | As at Dec 31, 2013 |
|
|
|||||||||
Class of financial instrument |
Consolidated balance sheet caption |
Accounting designation |
Related caption on Statement of Net Earnings |
Carrying value ($M) |
Fair value ($M) |
Carrying value ($M) |
Fair value ($M) |
|
Fair value measurement hierarchy |
|||||
Cash | Cash and cash equivalents | HFT |
Gains and losses on foreign exchange are included in foreign exchange loss (gain) |
165,497 | 165,497 | 389,559 | 389,559 |
|
Level 1 | |||||
Receivables | Accounts receivable | LAR | Gains and losses on foreign exchange are included in foreign exchange loss (gain) and impairments are recognized as general and administration expense |
|
199,251 |
|
199,251 |
|
167,618 |
|
167,618 |
|
Not applicable | |
Derivative assets | Derivative instruments | HFT | Gain on derivative instruments |
|
7,624 |
|
7,624 |
|
2,285 |
|
2,285 |
|
Level 2 | |
Derivative liabilities | Derivative instruments | HFT | Gain on derivative instruments | (7,787) | (7,787) | (3,572) | (3,572) |
|
Level 2 | |||||
Payables | Accounts payable and accrued liabilities | OTH |
Gains and losses on foreign exchange are included in foreign exchange loss (gain) |
|
(287,172) |
|
(287,172) |
|
(288,257) |
|
(288,257) |
|
Not applicable | |
Dividends payable |
|
|
||||||||||||
Long-term debt | Long-term debt | OTH | Interest expense |
|
(1,198,866) |
|
(1,207,610) |
|
(990,024) |
|
(998,648) |
|
Level 2 |
The accounting designations used in the above table refer to the following:
HFT - Classified as "Held for trading" in accordance with International Accounting Standard 39 "Financial Instruments: Recognition and Measurement". These financial assets and liabilities are carried at fair value on the consolidated balance sheets with associated gains and losses reflected in net earnings.
LAR - "Loans and receivables" are initially recognized at fair value and are subsequently measured at amortized cost. Impairments and foreign exchange gains and losses are recognized in net earnings.
OTH - "Other financial liabilities" are initially recognized at fair value net of transaction costs directly attributable to the issuance of the instrument and subsequently are measured at amortized cost. Interest is recognized in net earnings using the effective interest method. Foreign exchange gains and losses are recognized in net earnings.
Level 1 - Fair value measurement is determined by reference to unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value measurement is determined based on inputs other than unadjusted quoted prices that are observable, either directly or indirectly.
Level 3 - Fair value measurement is based on inputs for the asset or liability that are not based on observable market data.
Determination of Fair Values
The level in the fair value hierarchy into which the fair value measurements are categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. Transfers between levels on the fair value hierarchy are deemed to have occurred at the end of the reporting period.
Fair values for derivative assets and derivative liabilities are determined using pricing models incorporating future prices that are based on assumptions which are supported by prices from observable market transactions and are adjusted for credit risk.
The carrying value of receivables approximate their fair value due to their short maturities.
The carrying value of long-term debt outstanding on the revolving credit facility approximates its fair value due to the use of short-term borrowing instruments at market rates of interest.
The fair value of the senior unsecured notes changes in response to changes in the market rates of interest payable on similar instruments and was determined with reference to prevailing market rates for such instruments.
Nature and Extent of Risks Arising from Financial Instruments
Market risk:
Vermilion's financial instruments are exposed to currency risk related
to changes in foreign currency denominated financial instruments and
commodity price risk related to outstanding derivative positions. The
following table summarizes what the impact on comprehensive income
before tax would be for the six months ended June 30, 2014 given
changes in the relevant risk variables that Vermilion considers were
reasonably possible at the balance sheet date. The impact on
comprehensive income before tax associated with changes in these risk
variables for assets and liabilities that are not considered financial
instruments are excluded from this analysis. This analysis does not
attempt to reflect any interdependencies between the relevant risk
variables.
Before tax effect on comprehensive | ||
income - increase (decrease) |
||
Risk ($M) | Description of change in risk variable | June 30, 2014 |
Currency risk - Euro to Canadian | Increase in strength of the Canadian dollar against the Euro by 5% over the relevant closing rates | (3,580) |
|
|
|
Decrease in strength of the Canadian dollar against the Euro by 5% over the relevant closing rates | 3,580 | |
|
|
|
Currency risk - US $ to Canadian | Increase in strength of the Canadian dollar against the US $ by 5% over the relevant closing rates | (2,866) |
|
|
|
Decrease in strength of the Canadian dollar against the US $ by 5% over the
relevant closing rates |
2,866 | |
Commodity price risk | Increase in relevant oil reference price within option pricing models used to determine | (7,593) |
the fair value of financial derivatives by US $5.00/bbl at the relevant valuation dates | ||
|
|
|
Decrease in relevant oil reference price within option pricing models used to determine | 6,893 | |
the fair value of financial derivatives by US $5.00/bbl at the relevant valuation dates | ||
Interest rate risk | Increase in average Canadian prime interest rate by 100 basis points during the relevant periods | (4,063) |
|
|
|
Decrease in average Canadian prime interest rate by 100 basis points during the relevant periods |
4,063 |
SOURCE Vermilion Energy Inc.
Copyright 2014 PR Newswire
1 Year Vermilion Energy Chart |
1 Month Vermilion Energy Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions