Vermilion Energy Inc. Announces Results for the Three and Six Months Ended June 30, 2022, 33% Dividend Increase and Return of Capital Framework
August 11, 2022
Vermilion Energy Inc. (“Vermilion”, “We”, “Our”, “Us” or the “Company”) (TSX: VET) (NYSE: VET) is pleased to report operating and condensed financial results for the three and six months ended June 30, 2022, a 33% dividend increase and our Return of Capital Framework.
The unaudited interim financial statements and management discussion and analysis for the three and six months ended June 30, 2022 will be available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml, and on Vermilion’s website at www.vermilionenergy.com.
- Q2 2022 fund flows from operations (“FFO”)(1) was $453 million ($2.75/basic share)(2) and free cash flow (“FCF”)(3) was $340 million ($2.07/basic share)(4), an increase of 16% and 12%, respectively from the prior quarter. The increases were primarily due to higher commodity prices. Cash flow from operating activities was $530 million in Q2 2022, including the impact from asset retirement obligations settled and changes in non-cash operating working capital.
- Pro forma Q2 2022 FFO and FCF incorporating the incremental 36.5% ownership in Corrib was $536 million ($3.26/basic share) and $422 million ($2.56/basic share), respectively. As a reminder, all FCF from the Corrib acquisition accrues to Vermilion as at January 1, 2022 and will be netted off the approximate $600 million purchase price at the time of closing which we expect to occur in Q4 2022.
- With clear line of sight to achieving our next mid-cycle(5) debt target, we are pleased to outline our formal return of capital framework. We intend to return an increasing amount of capital to shareholders as debt levels decrease using a debt grid to guide near-term Return of Capital allocation decisions.
- In conjunction with our Q2 2022 release, we announced a 33% increase to our Q3 2022 quarterly cash dividend to $0.08 CDN per share which equates to an annual dividend of $0.32 CDN per share, or approximately $53 million. Dividends will remain a key component of our return of capital framework as we seek to provide shareholders with a resilient and increasing base dividend; however, we will limit the annual cash dividend to approximately 10% of our mid-cycle FFO.
- Based on our Return of Capital Allocation Grid, recent commodity strip(6) and internal estimates, we anticipate returning up to 25% of FCF in 2H 2022 and up to 50% – 75% of FCF in 2023. We will consider various options to return capital; including share buybacks, regular and special dividends and a potential substantial issuer bid. Based on our review of a number of valuation data points, we expect the majority of the incremental capital return to be in the form of share buybacks initially.
- In early July 2022, we announced the approval of a normal course issuer bid (“NCIB”) for the purchase of up to 16,076,666 common shares, representing approximately 10% of Vermilion’s public float as at June 22, 2022. To date, we have repurchased 1.25 million common shares for $35 million.
- Net earnings were $363 million in Q2 2022, an increase of 28% from the prior quarter due to higher commodity prices and net hedging gains.
- Cash flow used in investing activities totaled $613 million in the second quarter including exploration and development (“E&D”) capital expenditures(7) of $113 million and acquisition capital of $522 million.
- The Leucrotta acquisition closed on May 31, 2022 and the assets have been successfully integrated into Vermilion. We are now focused on completing the 6-well Montney pad that was drilled in Q2 2022. The Mica asset significantly increases the depth and quality of our North American inventory and is expected to add multiple decades of development that will enhance FCF to the business.
- Long-term debt in Q2 2022 was $1.5 billion and net debt(8) was $1.6 billion, resulting in our net debt to trailing FFO ratio decreasing to 1.1 times(9) compared to 1.2 times in the prior quarter.
- Production in Q2 2022 averaged 84,868 boe/d(10) a decrease of 2% from the previous quarter, primarily due to planned and unplanned downtime.
- Production from our North American operations averaged 58,027 boe/d(10) in Q2 2022, an increase of 3% from the prior quarter primarily due to the Leucrotta acquisition, which closed on May 31, 2022.
- Production from our International operations averaged 26,840 boe/d(10) in Q2 2022, a decrease of 9% from the prior quarter primarily due to natural decline, offshore drilling delays and unplanned downtime in Australia.
- As a result of forest fire related downtime in France, offshore drilling delays in Australia, combined with inflationary pressure, we are increasing our 2022 capital budget by $50 million to $550 million. Annual production guidance, excluding the Corrib acquisition volumes, remains unchanged at 86,000 to 88,000 boe/d. Our exit rate forecast of 95,000 to 100,000 boe/d, including the Corrib acquisitions volumes, also remains unchanged.
- We released the annual update to our online sustainability report in July 2022. Notable highlights include the decrease in our Scope 1 emission intensity to .018 tCO2e per throughput operated boe, in line with our target to reduce our 2019 baseline of .019 tCO2e per throughput operated boe by 15% to 20% by 2025, and coverage of our Corrib Biodiversity Action Plan achievements.