Exhibit 99.1
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", "project", 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 net present value of future net revenue from such reserves; petroleum and natural gas sales; future production levels (including the timing thereof) and rates of average annual production growth; 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; and the timing of regulatory proceedings and approvals.
Such forward looking statements or information are based on a number of assumptions, all or any of which may prove to be incorrect. In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of Vermilion to obtain equipment, services and supplies in a timely manner to carry out its activities in 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.
This document contains metrics commonly used in the oil and gas industry. These oil and gas metrics do not have any standardized meaning or standard methods of calculation and therefore may not be comparable to similar measures presented by other companies where similar terminology is used and should therefore not be used to make comparisons. Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel of oil equivalent. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Financial data contained within this document are reported in Canadian dollars, unless otherwise stated.
| Vermilion Energy Inc. ■ Page 1 ■ 2021 Second Quarter Report |
Abbreviations
| $M | thousand dollars |
| $MM | million dollars |
| AECO | the daily average benchmark price for natural gas at the AECO ‘C’ hub in Alberta |
| bbl(s) | barrel(s) |
| bbls/d | barrels per day |
| boe | barrel of oil equivalent, including: crude oil, condensate, 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 |
| LSB | light sour blend crude oil reference price |
| mbbls | thousand barrels |
| mcf | thousand cubic feet |
| mmcf/d | million cubic feet per day |
| NBP | the reference price paid for natural gas in the United Kingdom at the National Balancing Point Virtual Trading Point. |
| NGLs | natural gas liquids, which includes butane, propane, and ethane |
| PRRT | Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia |
| tCO2e | tonnes of carbon dioxide equivalent |
| TTF | the price for natural gas in the Netherlands, quoted in megawatt hours of natural gas, at the Title Transfer Facility Virtual Trading Point |
| WTI | West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma |
| Vermilion Energy Inc. ■ Page 2 ■ 2021 Second Quarter Report |
Highlights
| • | Fund flows from operations ("FFO")(1) was $173 million in Q2 2021, an increase of 7% from the prior quarter. The increase was primarily due to higher commodity prices. |
| • | We generated $94 million of free cash flow (“FCF”)(1) in Q2 2021 after investing $79 million in exploration and development (“E&D”) capital expenditures, resulting in a payout ratio of 48% including reclamation and abandonment expenditures. During the first half of 2021, we have generated $173 million of FCF compared to negative $24 million in the first half of 2020. With the continued strength in commodity prices, as reflected under current strip pricing, we expect to generate significantly higher FFO during the second half of 2021 and now forecast annual FCF in excess of $400 million, or over $2.50 per share, for 2021. |
| • | Net debt at the end of Q2 2021 was $2.0 billion, representing a 5% decrease compared to year-end 2020. We have reduced the amount outstanding under our revolving credit facility by over $327 million or 19% since Q2 2020. With the excess FCF we expect to generate over the balance of the year, we will continue to reduce net debt, with our ultimate goal of having leverage reduced to 1.5 times debt to cash flow or less. |
| • | Production in Q2 2021 averaged 86,335 boe/d(2), relatively consistent with first quarter production of 86,276 boe/d as new production adds in Canada from our Q1 2021 drilling program offset declines in other operating regions. |
| • | Production from our North American assets averaged 58,354 in Q2 2021, an increase of 3% from the prior quarter primarily as a result of new production added from our Q1 2021 Canadian drilling program. |
| • | Production from our International assets averaged 27,981 in Q2 2021, a decrease of 5% from the prior quarter primarily due to natural declines and downtime in Australia and Ireland. |
| • | In Canada, during the second quarter we drilled one (0.2 net) well and brought on two (1.7 net) condensate-rich Mannville natural gas wells and initiated our drilling campaign in south-east Saskatchewan, where we drilled eight (6.9 net) wells and completed six (5.4 net) wells. Five (4.4 net) of these wells were brought on production during the quarter with the remaining wells to be brought on production in Q3 2021. |
| • | In the United States we commenced our four (4.0 net) well drilling program centered on Turner horizontal wells in the Powder River basin. Two of the wells were completed and brought on production in the quarter, and are performing as expected. The remaining two wells are expected to be completed and brought on production in Q3 2021. Drilling costs on this program were reduced by 20% compared to budget. |
| • | In the Netherlands, we successfully drilled one (1.0 net) natural gas well which encountered a 16 meter gas column in the Rotliegend Slochteren formation and multiple thin sands with reservoir potential in the Rotliegend Ten Boer formation. The well was completed at the end of June and we expect to bring it on production in Q3 2021. Subsequent to Q2 2021, we began inline testing of the Rotliegend formation on the Blesdijke natural gas well (0.5 net) drilled in Q1 2021 and achieved initial rates up to 7.0 mmcf/d. We plan on conducting further testing in Q3 2021 and expect to bring the well onstream later in the year. |
| • | Furthering our focus on the energy transition, we established a third geothermal application from our produced water in France. Our Vic Bilh facility will provide geothermal heat to a nearby Fleur de Vie facility that produces high quality spirulina, a microalgae with a wide variety of uses. The facility is expected to be completed in autumn 2021. |
| • | We published our 2021 Sustainability Report, Value Matters, which includes 2020 ESG-related data updates. |
| (1) | Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
| (2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
| Vermilion Energy Inc. ■ Page 3 ■ 2021 Second Quarter Report |
| ($M except as indicated) | Q2 2021 | Q1 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| Financial | | | | | |
| Petroleum and natural gas sales | 407,179 | | 368,137 | | 193,013 | | 775,316 | | 521,327 | |
| Fund flows from operations | 172,942 | | 162,051 | | 81,852 | | 334,993 | | 252,077 | |
| Fund flows from operations ($/basic share) (1) | 1.07 | | 1.02 | | 0.52 | | 2.09 | | 1.60 | |
| Fund flows from operations ($/diluted share) (1) | 1.05 | | 1.00 | | 0.52 | | 2.06 | | 1.60 | |
| Net earnings (loss) | 451,274 | | 499,964 | | (71,290) | | 951,238 | | (1,389,794) | |
| Net (loss) earnings ($/basic share) | 2.79 | | 3.15 | | (0.45) | | 5.94 | | (8.83) | |
| Capital expenditures | 79,176 | | 83,363 | | 42,274 | | 162,539 | | 275,978 | |
| Acquisitions | 11,859 | | 393 | | 2,932 | | 12,252 | | 14,269 | |
| Asset retirement obligations settled | 3,321 | | 7,023 | | 970 | | 10,344 | | 4,702 | |
| Cash dividends ($/share) | — | | — | | — | | — | | 0.575 | |
| Dividends declared | — | | — | | — | | — | | 90,067 | |
| % of fund flows from operations | — | % | — | % | — | % | — | % | 36 | % |
| Payout (1) | 82,497 | | 90,386 | | 42,612 | | 172,883 | | 362,470 | |
| % of fund flows from operations | 48 | % | 56 | % | 52 | % | 52 | % | 144 | % |
| Free Cash Flow (1) | 93,766 | | 78,688 | | 39,578 | | 172,454 | | (23,901) | |
| Net debt | 2,005,272 | | 1,996,675 | | 2,161,442 | | 2,005,272 | | 2,161,442 | |
| Net debt to four quarter trailing fund flows from operations | 3.43 | | 4.04 | | 3.16 | | 3.43 | | 3.16 | |
| Operational |
| Production (2) | | | | | |
| Crude oil and condensate (bbls/d) | 38,354 | | 39,204 | | 45,041 | | 38,777 | | 44,961 | |
| NGLs (bbls/d) | 8,695 | | 8,074 | | 9,588 | | 8,386 | | 8,805 | |
| Natural gas (mmcf/d) | 235.72 | | 233.98 | | 274.42 | | 234.86 | | 269.96 | |
| Total (boe/d) | 86,335 | | 86,276 | | 100,366 | | 86,306 | | 98,760 | |
| Average realized prices | | | | | |
| Crude oil and condensate ($/bbl) | 79.06 | | 71.09 | | 34.90 | | 75.21 | | 47.20 | |
| NGLs ($/bbl) | 25.43 | | 29.39 | | 8.94 | | 27.32 | | 8.94 | |
| Natural gas ($/mcf) | 5.24 | | 5.51 | | 1.85 | | 5.37 | | 2.39 | |
| Production mix (% of production) | | | | | |
| % priced with reference to WTI | 38 | % | 38 | % | 41 | % | 38 | % | 40 | % |
| % priced with reference to Dated Brent | 17 | % | 18 | % | 14 | % | 17 | % | 16 | % |
| % priced with reference to AECO | 30 | % | 28 | % | 29 | % | 29 | % | 28 | % |
| % priced with reference to TTF and NBP | 15 | % | 16 | % | 16 | % | 16 | % | 16 | % |
| Netbacks ($/boe) | | | | | |
| Operating netback (1) | 25.90 | | 25.58 | | 12.49 | | 25.74 | | 17.25 | |
| Fund flows from operations netback | 22.04 | | 21.66 | | 9.08 | | 21.85 | | 13.96 | |
| Operating expenses | 12.72 | | 12.86 | | 11.00 | | 12.79 | | 12.21 | |
| General and administration expenses | 1.46 | | 1.57 | | 1.88 | | 1.51 | | 1.67 | |
| Average reference prices and foreign exchange rates | | | | | |
| WTI (US $/bbl) | 66.07 | | 57.84 | | 27.85 | | 61.96 | | 37.01 | |
| Edmonton Sweet index (US $/bbl) | 62.96 | | 52.60 | | 21.71 | | 57.78 | | 30.15 | |
| Saskatchewan LSB index (US $/bbl) | 62.71 | | 52.82 | | 21.60 | | 57.77 | | 30.01 | |
| Dated Brent (US $/bbl) | 68.83 | | 60.90 | | 29.20 | | 64.86 | | 39.73 | |
| AECO ($/mcf) | 3.09 | | 3.15 | | 1.99 | | 3.12 | | 2.01 | |
| NBP ($/mcf) | 10.92 | | 8.70 | | 2.26 | | 9.83 | | 3.31 | |
| TTF ($/mcf) | 10.76 | | 8.27 | | 2.39 | | 9.54 | | 3.32 | |
| CDN $/US $ | 1.23 | | 1.27 | | 1.39 | | 1.25 | | 1.37 | |
| CDN $/Euro | 1.48 | | 1.53 | | 1.53 | | 1.50 | | 1.50 | |
| Share information ('000s) |
| Shares outstanding - basic | 161,893 | | 159,349 | | 158,307 | | 161,893 | | 158,307 | |
| Shares outstanding - diluted (1) | 168,903 | | 166,018 | | 164,090 | | 168,903 | | 164,090 | |
| Weighted average shares outstanding - basic | 161,546 | | 158,892 | | 158,189 | | 160,226 | | 157,375 | |
| Weighted average shares outstanding - diluted (1) | 165,034 | | 161,397 | | 158,189 | | 162,553 | | 157,375 | |
| (1) | The above table includes non-GAAP financial measures which may not be comparable to other companies. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
| (2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
| Vermilion Energy Inc. ■ Page 4 ■ 2021 Second Quarter Report |
Message to Shareholders
Commodity prices continued to strengthen through the second quarter as economies around the world began to reopen following the year-long COVID-related lockdowns. Benchmark oil prices increased approximately 14% in Q2 2021 compared to the previous quarter and European natural gas prices increased approximately 30% from the previous quarter, driving an 11% increase in our quarterly revenue on production of 86,335 boe/d which was up slightly from the previous quarter.
We generated $173 million of FFO in Q2 2021, representing an increase of 7% over the previous quarter. E&D capital expenditures were $79 million in the quarter, resulting in $94 million of FCF(1) and a payout ratio of 48% including reclamation and abandonment expenditures. During the first half of 2021, we generated $172 million of FCF compared to negative $24 million in the first half of 2020.
With the continued strength in commodity prices, as reflected under current strip pricing, we expect to generate significantly higher FFO during the second half of 2021 and now forecast annual FCF in excess of $400 million, or over $2.50 per share, for 2021. This significant improvement in FCF is not only due to higher commodity prices but is also the result of a more level-loaded capital program compared to last year. We continue to believe a level-loaded capital program delivers more efficient operations and a more manageable production base. Some of the benefits from a level-loaded capital program were evidenced during the second quarter as we realized a 20% reduction in our US drilling costs which is the result of a number of initiatives including executing the program in the spring (versus winter) and using an experienced drilling crew that worked on our Canadian winter drilling campaign in Q1 2021.
The majority of FCF generated in the quarter was used to reduce our revolving credit facility. Over the past year we have reduced the amount outstanding under our revolving credit facility by $326 million or 19%. Net debt at the end of Q2 2021 was relatively unchanged from the previous quarter at $2 billion mainly due to an increase in derivative liabilities associated with higher commodity prices; however, our net debt to four-quarter-trailing FFO ratio improved to 3.4x from 4.0x in the previous quarter. While this is still well above our comfort level, it is a step in the right direction and moves us closer to our ultimate leverage target of 1.5x or lower.
We have made solid progress during the first half of 2021, with our production and FCF results exceeding budget expectations. As we move through the second half of 2021, we will remain disciplined in our strategy with a continued focus on improving operational efficiencies and reducing debt. Production levels averaged in excess 86,300 boe/d in 1H 2021 but are expected to moderate in 2H 2021 due to planned maintenance across several of our operating jurisdictions, including extended turnarounds in Ireland and Australia. Our 2021 production guidance of 83,000 to 85,000 boe/d remains intact and our E&D capital budget remains unchanged at $300 million; however, we may still consider adding up to $50 million of incremental capital in Q4 2021 if commodity prices remain supportive. We have several projects lined up and ready to execute should we decide to invest incremental capital in Q4 2021; however, any new production associated with these projects would not contribute to 2021 volumes.
As we look to 2022 and start working through our budgeting process over the coming months, it is our intent to remain financially disciplined and manage towards a similar production range as 2021 with a continued focus on striking the right balance between allocating FCF to the balance sheet and asset base. We aim to achieve this through a combination of organic capital development and strategic acquisitions if and when the right opportunities become available. As we have stated previously, our long-term goal is to return to a dividend paying capital markets model and we believe this balanced approach is the most appropriate way to achieve this. We will continue to focus on debt reduction in the near-term, and once we are comfortable with our leverage ratio, we will consider returning capital to our shareholders through the re-instatement of a dividend as we believe the FCF capability of our asset base is supportive of the dividend capital markets model.
| Q2 2021 Operations Review |
North America
Production from our North American assets averaged 58,354 in Q2 2021, an increase of 3% from the prior quarter primarily as a result of new production added from Q1 2021 Canadian drilling program. During the second quarter, we drilled one (0.2 net) well and brought two (1.7 net) condensate-rich Mannville natural gas wells on production in west-central Alberta and initiated our drilling campaign in south-east Saskatchewan, where we drilled eight (6.9 net) wells and completed six (5.4 net) wells. Five (4.4 net) of these wells were brought on production during the quarter with the remaining wells to be brought on production in Q3 2021.
In the United States, we moved one of our experienced drilling crews from our Canadian operations to Wyoming and commenced our four (4.0 net) well drilling program in April, centered on Turner horizontal wells in the Powder River basin. Two of the wells were completed and brought on production in the quarter, and are performing as expected. The remaining two wells are expected to be completed and brought on production in Q3 2021. Drilling costs on this program were reduced by 20% compared to budget.
| Vermilion Energy Inc. ■ Page 5 ■ 2021 Second Quarter Report |
International
Production from our International assets averaged 27,981 in Q2 2021, a decrease of 5% from the prior quarter primarily due to natural declines and downtime in Ireland and Australia. In Europe, we drilled one (1.0 net) natural gas well in the Netherlands and continued our workover programs in France, Netherlands and Germany.
In the Netherlands, we successfully drilled the Nijega well (1.0 net), which encountered a 16 meter gas column in the Rotliegend Slochteren formation and multiple thin sands with reservoir potential in the Rotliegend Ten Boer formation. The well was completed at the end of June 2021 and we expect to bring it on production in Q3 2021. Subsequent to Q2 2021, we began inline testing of the Rotliegend formation on the Blesdijke natural gas well (0.5 net) drilled in Q1 2021 and achieved initial rates up to 7.0 mmcf/d. We plan on conducting further testing in Q3 2021 and expect to bring the well onstream later in the year.
In Germany, we had strong operational performance and runtime across our operated and non-operated assets and we continued to prepare for the start-up of the Burgmoor Z5 well (46% working interest) in Q3 2021.
In France, our trucking operations in the Paris Basin continue to run smoothly following the transition of our Paris Basin oil production from pipeline delivery to trucking after the Total Grandpuits refinery ceased crude oil refining in Q1 2021. The majority of the Paris Basin production is being delivered to the Total Le Havre refinery in northwest France and to our Parentis facility which delivers crude to various refineries in Europe through the Ambes terminal in southwest France. Additionally, we started trucking some volumes to a refinery in Germany and will continue to evaluate other shipping options to further optimize operations and reduce costs.
In Central and Eastern Europe ("CEE"), we successfully completed our 3-D seismic program in the SA-10 block in Croatia, with an additional seismic program planned for the SA-07 block later this year, which will further enhance our knowledge of the region prior to our next drilling program planned for 2022. Work is continuing to progress on the Croatian gas plant on the SA-10 block in preparation for the tie-in of the two successful gas wells drilled previously.
In Ireland, one of the 6 producing sub-sea wells was offline for approximately 40 days during Q2 2021 due to a stuck choke valve. The valve has been replaced and the well was brought back on production at the end of June 2021. We continued to make preparations for the 21-day turnaround at Corrib scheduled in Q3 2021.
In Australia, we had a 4-day shutdown in Q2 2021 due to a vessel cleanout, and we continue to plan for a 20-day scheduled turnaround in the second half of 2021.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of August 13, 2021, we have 29% of our expected net-of-royalty production hedged for the second half of 2021. With respect to individual commodity products, we have hedged 69% of our European natural gas production, 5% of our oil production, and 49% of our North American natural gas volumes for the second half of 2021, respectively. Please refer to the Hedging section of our website under Invest With Us for further details using the following link: https://www.vermilionenergy.com/invest-with-us/hedging.cfm.
Sustainability
In August 2021, we published our 2021 Sustainability Report, Value Matters, which includes 2020 data updates. This eighth annual report demonstrates our continued commitment to environmental, social and governance ("ESG") matters and the energy transition, including the release of our renewed sustainability strategy. Created using input from staff across the Company and from external stakeholders, including investors, our strategy focuses on the key areas of carbon, conservation and community. The report is available on our Sustainability micro-site at the following link: https://sustainability.vermilionenergy.com/, and includes a climate-related Energy Transition section that can be read as a standalone report. PDF versions of both reports are available at the “download report” link on the micro-site, along with our 2021 CDP Climate Change and CDP Water Security submissions. In addition, MSCI confirmed our “AA” ESG rating for 2021.(3)
As part of our progression towards achieving our recently announced carbon emission reduction targets, we completed the installation of nine solar powered chemical injection pumps at various well sites in Alberta. This project is expected to reduce Vermilion’s Scope 1 emissions by 9,000 tCO2e/year. Furthering our focus on energy transition, we also established a third geothermal application from our produced water in France. Our Vic Bilh facility will provide geothermal heat to a nearby Fleur de Vie facility that produces high quality spirulina, a microalgae with a wide variety of uses. The facility is expected to be completed in autumn 2021.
| Vermilion Energy Inc. ■ Page 6 ■ 2021 Second Quarter Report |
Board of Directors
Vermilion recently announced the appointments of Ms. Manjit Sharma and Ms. Judy Steele to our Board of Directors.
Ms. Sharma brings over 25 years’ experience in a wide range of operational matters in a variety of industries, most recently as Chief Financial Officer of WSP Canada, and previously with GE Canada for over 20 years, serving in various senior management roles. Ms. Sharma serves as a member of the Board of Directors for Export Development Canada, and is a member of the GE Canada Pension Trust Committee. She holds a Bachelor of Commerce (Honours) from the University of Toronto and the Chartered Professional Accountant designation. She is an alumnus of the Rotman School of Management’s Judy Project for Executive Women in Leadership and was recognized as one of Canada’s Top 100 Most Powerful Women in 2019.
Since October 2012, Ms. Steele has been the President & Chief Operating Officer of Emera Energy Inc., where she is responsible for commercial performance, operations, business growth and development, risk management, and team leadership and development. She has been involved in overseeing various energy businesses including hydro, wind, biomass and natural gas fired electrical generating facilities. Prior to her current role, Ms. Steele held a variety of executive and senior management positions within Emera Inc. She is currently a Board member of Canadian Blood Services and a Governor of St. Francis Xavier University. Ms. Steele holds the designation Fellow Chartered Accountant, and a Bachelor of Public Relations from Mount Saint Vincent University. She is a recipient of the Chartered Accountant of the Year Award, from the Institute of Chartered Accountants of Nova Scotia, for outstanding community leadership.
Ms. Cathy Williams is retiring from Vermilion’s Board of Directors. Ms. Williams has been a Director of Vermilion since 2015 and was a member of Vermilion’s Audit Committee and Governance and Human Resources Committee. We wish to thank Cathy for her valuable contribution to Vermilion as a Board member and wish her all the best in her retirement.
| (Signed “Lorenzo Donadeo”) | | (Signed “Curtis Hicks”) |
| | | |
| Lorenzo Donadeo | | Curtis Hicks |
| Executive Chairman | | President |
| August 13, 2021 | | August 13, 2021 |
| (1) | Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis. |
| (2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |
(3) * The use by Vermilion Energy Inc of any MSCI ESG Research LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of Vermilion by MSCI. MSCI services and data are the property of MSCI or its information providers, and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks or service marks of MSCI.
| Vermilion Energy Inc. ■ Page 7 ■ 2021 Second Quarter Report |
Management's Discussion and Analysis
The following is Management’s Discussion and Analysis (“MD&A”), dated August 13, 2021, of Vermilion Energy Inc.’s (“Vermilion”, “we”, “our”, “us” or the “Company”) operating and financial results as at and for the three and six months ended June 30, 2021 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, 2021 and the audited consolidated financial statements for the years ended December 31, 2020 and 2019, together with the 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, 2021 and comparative information have been prepared in Canadian dollars, except where another currency has been indicated, and in accordance with IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB").
This MD&A includes references to certain financial and performance measures which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). These measures include:
| • | Fund flows from operations: Fund flows from operations is a measure of profit or loss in accordance with IFRS 8 “Operating Segments”. Please see "Segmented Information" in the "Notes to the Condensed Consolidated Interim Financial Statements" for a reconciliation of fund flows from operations to net earnings. We analyze fund flows from operations both on a consolidated basis and on a business unit basis in order to assess the contribution of each business unit to our ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. |
| • | Free cash flow: Represents fund flows from operations in excess of capital expenditures. We use free cash flow 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. We also assess free cash flow as a percentage of fund flows from operations, which is a measure of the percentage of fund flows from operations that is retained for incremental investing and financing activities. |
| • | Net debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements". Net debt is comprised of long-term debt plus current liabilities less current assets and represents Vermilion's net financing obligations after adjusting for the timing of working capital fluctuations. Net debt excludes non-current lease obligations which are secured by a corresponding right-of-use asset. Please see "Capital disclosures" in the "Notes to the Condensed Consolidated Interim Financial Statements" for additional information. |
| • | Netbacks: Netbacks are per boe and per mcf performance measures used in the analysis of operational activities. We assess netbacks both on a consolidated basis and on a business unit basis in order to compare and assess the operational and financial performance of each business unit versus other business units and also versus third party crude oil and natural gas producers. |
In addition, this MD&A includes references to certain financial measures which are not specified, defined, or determined under IFRS and are therefore considered non-GAAP financial measures. These non-GAAP financial measures are unlikely to be comparable to similar financial measures presented by other issuers. For a full description of these non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to “Non-GAAP Financial Measures”.
Product Type Disclosure
Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include segmentation by product type as defined in the instrument. In this report, references to "crude oil" and "light and medium crude oil" mean "light crude oil and medium crude oil" and references to "natural gas" mean "conventional natural gas".
In addition, in Supplemental Table 4 "Production", Vermilion provides a reconciliation from total production volumes to product type and also a reconciliation of "crude oil and condensate" and "NGLs" to the product types "light crude oil and medium crude oil" and "natural gas liquids".
Production volumes reported are based on quantities as measured at the first point of sale.
| Vermilion Energy Inc. ■ Page 8 ■ 2021 Second Quarter Report |
Guidance
On January 18, 2021, we released our 2021 capital budget and associated production guidance.
The following table summarizes our guidance:
| | Date | Capital Expenditures ($MM) | Production (boe/d) |
| 2021 Guidance | | | |
| 2021 Guidance | January 18, 2021 | 300 | 83,000 to 85,000 |
| Vermilion Energy Inc. ■ Page 9 ■ 2021 Second Quarter Report |
Vermilion's Business
Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, exploration, development, and optimization of producing properties in North America, Europe, and Australia. We manage our business through our Calgary head office and our international business unit offices.
| Vermilion Energy Inc. ■ Page 10 ■ 2021 Second Quarter Report |
Consolidated Results Overview
| | Q2 2021 | | Q2 2020 | | Q2/21 vs.
Q2/20 | YTD 2021 | | YTD 2020 | | 2021 vs.
2020 |
| Production (1) | | | | | | |
| Crude oil and condensate (bbls/d) | 38,354 | | 45,041 | | (15)% | 38,777 | | 44,961 | | (14)% |
| NGLs (bbls/d) | 8,695 | | 9,588 | | (9)% | 8,386 | | 8,805 | | (5)% |
| Natural gas (mmcf/d) | 235.72 | | 274.42 | | (14)% | 234.86 | | 269.96 | | (13)% |
| Total (boe/d) | 86,335 | | 100,366 | | (14)% | 86,306 | | 98,760 | | (13)% |
| Build (draw) in inventory (mbbls) | 15 | | 115 | | | 299 | | (76) | | |
| Financial metrics | | | | | | |
| Fund flows from operations ($M) | 172,942 | | 81,852 | 111% | 334,993 | | 252,077 | | 33% |
| Per share ($/basic share) | 1.07 | | 0.52 | | 106% | 2.09 | | 1.60 | | 31% |
| Net earnings (loss) ($M) | 451,274 | | (71,290) | | N/A | 951,238 | | (1,389,794) | | N/A |
| Per share ($/basic share) | 2.79 | | (0.45) | | N/A | 5.94 | | (8.83) | | N/A |
| Free cash flow | 93,766 | | 39,578 | | 137% | 172,454 | | (23,901) | | N/A |
| Net debt ($M) | 2,005,272 | | 2,161,442 | | (7)% | 2,005,272 | | 2,161,442 | | (7)% |
| Activity | | | | | | |
| Capital expenditures ($M) | 79,176 | | 42,274 | | 87% | 162,539 | | 275,978 | | (41)% |
| Acquisitions ($M) | 11,859 | | 2,932 | | | 12,252 | | 14,269 | | |
| (1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
| Financial performance review |
Q2 2021 vs. Q2 2020
| • | We recorded net earnings of $451.3 million ($2.79/basic share) for Q2 2021 compared to a net loss of $71.3 million ($0.45/basic share) in
Q2 2020. The increase was primarily driven by impairment reversals of $593.6 million in Q2 2021 and an increase in FFO primarily driven by an increase in realized pricing. This was partially offset by an increase in deferred taxes driven by impairment reversals in Q2 2021 and unrealized losses on derivatives due to increased commodity prices. |
| Vermilion Energy Inc. ■ Page 11 ■ 2021 Second Quarter Report |
| • | We generated fund flows from operations of $172.9 million in Q2 2021, an increase from $81.9 million in Q2 2020 primarily as a result of higher commodity prices which is reflected in our consolidated realized price per boe increasing from $21.40/boe in Q2 2020 to $51.93/boe in Q2 2021. This was partially offset by increased royalties driven by increased pricing and a decrease in sales volumes primarily driven by natural decline. |
YTD 2021 vs. YTD 2020
| • | For the six months ended June 30, 2021, we achieved net earnings of $951.2 million compared to a net loss of $1,389.8 million for the comparable period in 2020. The increase in net earnings was primarily due to impairment charges we recorded of $1,236.7 million in 2020 (net of $397.9 million income tax recovery), impairment reversal charges we recorded of $952.6 million in 2021 (net of $303.9 million income tax expense) and higher fund flows from operations driven by increased consolidated realized pricing. These increases were partially offset by higher unrealized derivative losses driven by increased commodity prices. |
| Vermilion Energy Inc. ■ Page 12 ■ 2021 Second Quarter Report |
| • | Fund flows from operations increased by 33% for the six months ended June 30, 2021 versus the same period in 2020 primarily driven by a 75% increase in our consolidated realized price from $28.88/boe to $50.60/boe resulting from higher commodity prices. Sales volumes decreased year-over-year primarily due to natural decline in North America, Ireland, and Netherlands, as well as timing of liftings in Australia. |
Q2 2021 vs. Q2 2020
| • | Consolidated average production of 86,335 boe/d in Q2 2021 represented a decrease of 14% from Q2 2020 production of 100,366 boe/d. Production decreases were mainly in Canada of 8,569 boe/d and in the United States of 2,972 boe/d due to natural decline and reduced capital activity as we are focused on maximizing free cash flow and reducing debt in 2021. |
YTD 2021 vs. YTD 2020
| • | Consolidated average production of 86,306 boe/d for the six months ended June 30, 2021 represented a decrease of 13% from the prior year comparable period of 98,760 boe/d. Production decreases were mainly in Canada of 7,843 boe/d and in the United States of 1,644 boe/d due to natural decline and reduced capital activity. |
| • | For the three months ended June 30, 2021, capital expenditures of $79.2 million were incurred. |
| • | In our North America core region, capital expenditures of $38.8 million were incurred during Q2 2021. In Canada, $20.2 million was incurred primarily related to drilling and completions activity. In south-east Saskatchewan we drilled eight (6.9 net) wells and completed six (5.4 net) wells. Five (4.4 net) wells were brought on production during the quarter. In addition, we drilled one (0.2 net) and brought two (1.7 net) Mannville natural gas wells on production. In the United States, we completed and brought on production two (2.0 net) wells in the quarter. |
| • | In our International core region, capital expenditures of $40.3 million were incurred during Q2 2021. Our activities included $13.1 million incurred in Australia primarily for riser replacement work, $8.9 million in France mainly due to increased activity on subsurface maintenance and facilities, $7.7 million in the Netherlands mainly related to the drilling of one (1.0 net) wells, and $6.8 million in Central and Eastern Europe mainly related to land and seismic expenditures in Croatia. |
| Vermilion Energy Inc. ■ Page 13 ■ 2021 Second Quarter Report |
| Financial sustainability review |
Free cash flow
| • | Free cash flow increased by $196.4 million for the six months ended June 20, 2021 compared to the prior year period. This was primarily the result of a 75% increase in consolidated realized prices, as well as lower capital spending due to a focus on generating free cash flow and reducing debt in 2021. |
Long-term debt and net debt
| • | Long-term debt decreased to $1.8 billion as at June 30, 2021 from $1.9 billion as at December 31, 2020. |
| • | Net debt decreased to $2.0 billion as at June 30, 2021 from $2.1 billion as at December 31, 2020, mainly due to a decrease in long-term debt of $164 million as a result of debt repayments. |
| • | The ratio of net debt to four quarter trailing fund flows from operations decreased to 3.43 as at June 30, 2021 (December 31, 2020 - 4.19) mainly due to lower net debt combined with higher four quarter trailing fund flows from operations. |
| Vermilion Energy Inc. ■ Page 14 ■ 2021 Second Quarter Report |
Benchmark Commodity Prices
| | Q2 2021 | | Q2 2020 | | Q2/21 vs.
Q2/20 | YTD 2021 | | YTD 2020 | | 2021 vs.
2020 |
| Crude oil | | | | | | |
| WTI ($/bbl) | 81.17 | | 38.62 | | 110% | 77.31 | | 50.54 | | 53% |
| WTI (US $/bbl) | 66.07 | | 27.85 | | 137% | 61.96 | | 37.01 | | 67% |
| Edmonton Sweet index ($/bbl) | 77.35 | | 30.11 | | 157% | 72.09 | | 41.17 | | 75% |
| Edmonton Sweet index (US $/bbl) | 62.96 | | 21.71 | | 190% | 57.78 | | 30.15 | | 92% |
| Saskatchewan LSB index ($/bbl) | 77.05 | | 29.95 | | 157% | 72.08 | | 40.98 | | 76% |
| Saskatchewan LSB index (US $/bbl) | 62.71 | | 21.60 | | 190% | 57.77 | | 30.01 | | 93% |
| Canadian C5+ Condensate index ($/bbl) | 81.58 | | 30.92 | | 164% | 77.63 | | 46.82 | | 66% |
| Canadian C5+ Condensate index (US $/bbl) | 66.40 | | 22.30 | | 198% | 62.22 | | 34.29 | | 82% |
| Dated Brent ($/bbl) | 84.56 | | 40.49 | | 109% | 80.93 | | 54.25 | | 49% |
| Dated Brent (US $/bbl) | 68.83 | | 29.20 | | 136% | 64.86 | | 39.73 | | 63% |
| Natural gas | | | | | | |
| AECO ($/mcf) | 3.09 | | 1.99 | | 55% | 3.12 | | 2.01 | | 55% |
| NBP ($/mcf) | 10.92 | | 2.26 | | 383% | 9.83 | | 3.31 | | 197% |
| NBP (€/mcf) | 7.37 | | 1.48 | | 398% | 6.53 | | 2.20 | | 197% |
| TTF ($/mcf) | 10.76 | | 2.39 | | 350% | 9.54 | | 3.32 | | 187% |
| TTF (€/mcf) | 7.27 | | 1.56 | | 366% | 6.34 | | 2.21 | | 187% |
| Henry Hub ($/mcf) | 3.48 | | 2.38 | | 46% | 3.45 | | 2.50 | | 38% |
| Henry Hub (US $/mcf) | 2.83 | | 1.72 | | 65% | 2.76 | | 1.83 | | 51% |
| Average exchange rates | | | | | | |
| CDN $/US $ | 1.23 | | 1.39 | | (12)% | 1.25 | | 1.37 | | (9)% |
| CDN $/Euro | 1.48 | | 1.53 | | (3)% | 1.50 | | 1.50 | | - % |
| Realized prices | | | | | | |
| Crude oil and condensate ($/bbl) | 79.06 | | 34.90 | | 127% | 75.21 | | 47.20 | | 59% |
| NGLs ($/bbl) | 25.43 | | 8.94 | | 185% | 27.32 | | 8.94 | | 206% |
| Natural gas ($/mcf) | 5.24 | | 1.85 | | 183% | 5.37 | | 2.39 | | 125% |
| Total ($/boe) | 51.93 | | 21.40 | | 143% | 50.60 | | 28.88 | | 75% |
As an internationally diversified producer, we are exposed to a range of commodity prices. In our North America core region, our crude oil is sold at benchmarks linked to WTI (including the Edmonton Sweet index, the Saskatchewan LSB index, and the Canadian C5+ index) and our natural gas is sold at the AECO index (in Canada) or the Henry Hub index (in the United States). In our International core region, our crude oil is sold with reference to Dated Brent and our natural gas is sold with reference to NBP, TTF, or indices highly correlated to TTF.
| Vermilion Energy Inc. ■ Page 15 ■ 2021 Second Quarter Report |
| • | Crude oil prices increased in Q2 2021 relative to Q2 2020 due to continued global demand recovery, a coordinated supply cut from the OPEC+ group, and lower US shale production. Year-over-year, Canadian dollar WTI and Brent prices rose 110% and 109% respectively. |
| • | In Canadian dollar terms, year-over-year, the Edmonton Sweet differential improved by $4.69/bbl to a discount of $3.82/bbl against WTI, and the Saskatchewan LSB differential improved by $4.55/bbl to a discount of $4.12/bbl against WTI. |
| • | Approximately 36% of Vermilion’s Q2 2021 crude oil and condensate production was priced at the Dated Brent index (which averaged a premium to WTI of US$2.76/bbl), while the remainder of our crude oil and condensate production was priced at the Saskatchewan LSB, Canadian C5+, Edmonton Sweet, and WTI indices. |
| • | In Canadian dollar terms, prices for European natural gas (NBP and TTF) rose by 383% and 350%, respectively, in Q2 2021 compared to Q2 2020. A rebalancing of the European gas market has been driven by a demand recovery, lower supply from both pipeline flows and LNG imports, and higher European carbon prices. |
| • | Natural gas prices at AECO in Q2 2021 increased by 55% compared to Q2 2020, with seasonal demand and supportive storage balances improving prices. |
| • | For Q2 2021, average European natural gas prices represented a $7.75/mcf premium to AECO. Approximately 36% of our natural gas production in Q2 2021 benefited from this premium European pricing. |
| • | For the three months ended June 30, 2021, the Canadian dollar strengthened 3% against the Euro quarter-over-quarter. |
| • | For the three months ended June 30, 2021, the Canadian dollar strengthened 3% against the US dollar quarter-over-quarter. |
| Vermilion Energy Inc. ■ Page 16 ■ 2021 Second Quarter Report |
North America
| | Q2 2021 | | Q2 2020 | | YTD 2021 | YTD 2020 |
| Production (1) | | | | | | | | |
| Crude oil and condensate (bbls/d) | 24,316 | | | 31,569 | | | 24,480 | | | 30,728 | | |
| NGLs (bbls/d) | 8,695 | | | 9,588 | | | 8,386 | | | 8,805 | | |
| Natural gas (mmcf/d) | 152.06 | | | 172.43 | | | 148.23 | | | 165.16 | | |
| Total production volume (boe/d) | 58,354 | | | 69,895 | | | 57,572 | | | 67,059 | | |
| (1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Sales | 224,609 | | 42.30 | | 116,009 | | 18.24 | | 444,743 | | 42.68 | | 286,800 | | 23.50 | |
| Royalties | (31,755) | | (5.98) | | (10,613) | | (1.67) | | (59,835) | | (5.74) | | (31,314) | | (2.57) | |
| Transportation | (10,084) | | (1.90) | | (10,934) | | (1.72) | | (20,568) | | (1.97) | | (22,072) | | (1.81) | |
| Operating | (57,830) | | (10.89) | | (61,046) | | (9.60) | | (115,111) | | (11.05) | | (130,780) | | (10.72) | |
| General and administration (1) | (4,825) | | (0.91) | | (9,674) | | (1.52) | | (11,673) | | (1.12) | | (14,612) | | (1.20) | |
| Corporate income tax (expense) (1) | (199) | | (0.04) | | (103) | | (0.02) | | (413) | | (0.04) | | (335) | | (0.03) | |
| Fund flows from operations | 119,916 | | 22.58 | | 23,639 | | 3.72 | | 237,143 | | 22.76 | | 87,687 | | 7.18 | |
| Capital expenditures | (38,847) | | | (23,979) | | | (97,960) | | | (221,905) | | |
| Free cash flow | 81,069 | | | (340) | | | 139,183 | | | (134,218) | | |
| (1) | Includes amounts from Corporate segment. |
In North America, production averaged 58,354 in Q2 2021, a decrease of 17% year-over-year primarily due to natural decline and reduced capital activity as we focused on maximizing free cash flow and reducing debt.
In Q2 2021, we drilled one (0.2 net) well and brought two (1.7 net) condensate-rich Mannville natural gas wells on production in west-central Alberta from our Q1 2021 drilling campaign. In south-east Saskatchewan we initiated our drilling campaign where we drilled eight (6.9 net) wells and completed six (5.4 net) wells, of which five (4.4 net) wells were brought on production during the quarter. The remaining wells will be brought on production in Q3 2021.
In the United States business unit, we moved one of our experienced drilling crews from our Canadian program to Wyoming and commenced our four (4.0 net) well drilling program, centered on Turner horizontal wells in the Powder River basin. Two of the wells were completed and brought on production in the quarter. The remaining two wells are expected to be completed and brought on production in Q3 2021.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Canada | 206,848 | | 41.62 | | 100,135 | | 17.41 | | 402,656 | | 41.57 | | 255,098 | | 22.84 | |
| United States | 17,761 | | 52.24 | | 15,874 | | 26.00 | | 42,087 | | 57.38 | | 31,702 | | 30.58 | |
| North America | 224,609 | | 42.30 | | 116,009 | | 18.24 | | 444,743 | | 42.68 | | 286,800 | | 23.50 | |
Sales in North America increased on a dollar and per unit basis for the three and six months ended June 30, 2021 versus the comparable prior periods due to higher benchmark prices across all products, partially offset by lower production volumes.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Canada | (27,001) | | (5.43) | | (6,777) | | (1.18) | | (48,775) | | (5.04) | | (23,462) | | (2.10) | |
| United States | (4,754) | | (13.98) | | (3,836) | | (6.28) | | (11,060) | | (15.08) | | (7,852) | | (7.57) | |
| North America | (31,755) | | (5.98) | | (10,613) | | (1.67) | | (59,835) | | (5.74) | | (31,314) | | (2.57) | |
| Vermilion Energy Inc. ■ Page 17 ■ 2021 Second Quarter Report |
Royalties in North America increased on a dollar and per unit basis for the three and six months ended June 30, 2021 versus the comparable prior periods primarily due to higher benchmark prices. Royalties as a percentage of sales for the three and six months ended June 30, 2021 of 14.1% and 13.5% increased versus comparable periods in the prior year primarily due to the effect of higher commodity prices on sliding scale royalties.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Canada | (9,868) | | (1.99) | | (10,465) | | (1.82) | | (20,104) | | (2.08) | | (21,603) | | (1.93) | |
| United States | (216) | | (0.64) | | (469) | | (0.77) | | (464) | | (0.63) | | (469) | | (0.45) | |
| North America | (10,084) | | (1.90) | | (10,934) | | (1.72) | | (20,568) | | (1.97) | | (22,072) | | (1.81) | |
Transportation expense in North America decreased versus the comparable prior periods primarily due to lower volumes shipped through pipelines, partially offset by increased pipeline tariffs. For the six months ended June 30, 2021, transportation expense in the United States increased on a per unit basis primarily due more volume being shipped via pipeline.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Canada | (54,441) | | (10.95) | | (57,281) | | (9.96) | | (107,607) | | (11.11) | | (121,466) | | (10.88) | |
| United States | (3,389) | | (9.97) | | (3,765) | | (6.17) | | (7,504) | | (10.23) | | (9,314) | | (8.98) | |
| North America | (57,830) | | (10.89) | | (61,046) | | (9.60) | | (115,111) | | (11.05) | | (130,780) | | (10.72) | |
Operating expenses in North America decreased on a dollar basis for the three and six months ended June 30, 2021 primarily due to cost reduction initiatives combined with lower production volumes. On a per unit basis, operating expenses increased for the three months ended June 30, 2021 primarily due to lower production volumes and the resulting impact of fixed costs.
| Vermilion Energy Inc. ■ Page 18 ■ 2021 Second Quarter Report |
International
| | Q2 2021 | | Q2 2020 | | YTD 2021 | YTD 2020 |
| Production (1) | | | | | | | | |
| Crude oil and condensate (bbls/d) | 14,037 | | | 13,471 | | | 14,298 | | | 14,232 | | |
| Natural gas (mmcf/d) | 83.66 | | | 101.99 | | | 86.62 | | | 104.81 | | |
| Total production volume (boe/d) | 27,981 | | | 30,472 | | | 28,734 | | | 31,701 | | |
| Total sales volume (boe/d) | 27,802 | | | 29,201 | | | 27,084 | | | 32,114 | | |
| (1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Sales | 182,570 | | 72.16 | | 77,004 | | 28.98 | | 330,573 | | 67.43 | | 234,527 | | 40.13 | |
| Royalties | (9,701) | | (3.83) | | (5,739) | | (2.16) | | (18,067) | | (3.69) | | (16,163) | | (2.77) | |
| Transportation | (11,750) | | (4.64) | | (5,431) | | (2.04) | | (18,287) | | (3.73) | | (11,623) | | (1.99) | |
| Operating | (41,907) | | (16.56) | | (38,129) | | (14.35) | | (80,867) | | (16.50) | | (89,533) | | (15.32) | |
| General and administration | (6,607) | | (2.61) | | (7,238) | | (2.72) | | (11,489) | | (2.34) | | (15,617) | | (2.67) | |
| Corporate income tax recovery (expense) | (492) | | (0.19) | | (55) | | (0.02) | | 1,067 | | 0.22 | | (397) | | (0.07) | |
| PRRT | (1,459) | | (0.58) | | (3,219) | | (1.21) | | (2,873) | | (0.59) | | (12,475) | | (2.13) | |
| Fund flows from operations | 110,654 | | 43.74 | | 17,193 | | 6.47 | | 200,057 | | 40.81 | | 88,719 | | 15.18 | |
| Capital expenditures | (40,329) | | | (18,295) | | | (64,579) | | | (54,073) | | |
| Free cash flow | 70,325 | | | (1,102) | | | 135,478 | | | 34,646 | | |
Production from our International assets averaged 27,981 boe/d in Q2 2021, representing a decrease of 8% year-over-year primarily due to natural decline and reduced capital activity.
In Europe, during the second quarter, we drilled one (1.0 net) natural gas well in the Netherlands from the Rotliegend Slochteren formation. The well was completed in June 2021 and we expect to bring production on in Q3 2021. Subsequent to Q2 2021, we began inline testing of the Rotliegend formation on the Blesdijke natural gas well (0.5 net) drilled in Q1 2021 and achieved initial rates up to 7.0 mmcf/d. We plan on conducting further testing in Q3 2021 and expect to bring the well onstream later in the year.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Australia | 31,256 | | 97.49 | | 28,772 | | 61.91 | | 58,638 | | 96.07 | | 80,767 | | 80.55 | |
| France | 68,108 | | 81.80 | | 23,329 | | 43.94 | | 119,637 | | 79.75 | | 80,118 | | 54.85 | |
| Netherlands | 32,555 | | 56.23 | | 10,654 | | 14.69 | | 61,106 | | 50.52 | | 30,257 | | 20.63 | |
| Germany | 20,274 | | 60.36 | | 6,553 | | 21.33 | | 33,369 | | 55.73 | | 17,022 | | 27.95 | |
| Ireland | 30,188 | | 65.93 | | 7,268 | | 12.43 | | 57,256 | | 59.03 | | 24,856 | | 20.50 | |
| Central and Eastern Europe | 189 | | 45.15 | | 428 | | 9.74 | | 567 | | 41.77 | | 1,507 | | 16.11 | |
| International | 182,570 | | 72.16 | | 77,004 | | 49.42 | | 330,573 | | 67.43 | | 234,527 | | 40.13 | |
As a result of changes in inventory levels, our sales volumes for crude oil in Australia, France, and Germany may differ from our production volumes in those business units. The following table provides the crude oil sales volumes (consisting entirely of "light crude oil and medium crude oil") for those jurisdictions.
| Crude oil sales volumes (bbls/d) | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| Australia | 3,523 | | 5,107 | | 3,372 | | | 5,509 | | |
| France | 9,149 | | 5,835 | | 8,288 | | | 8,026 | | |
| Germany | 1,091 | | 1,172 | | 890 | | | 1,023 | | |
| International | 13,763 | | 12,114 | | 12,550 | | | 14,558 | | |
| Vermilion Energy Inc. ■ Page 19 ■ 2021 Second Quarter Report |
Sales increased on a dollar and per boe basis for the three and six months ended June 30, 2021 versus the prior year comparable periods primarily due to higher realized prices across most business units driven by higher commodity prices over the same periods. This higher pricing was partially offset by lower sales volumes in the Netherlands, Ireland and Central Eastern Europe driven by natural decline and downtime in Australia due to a shutdown, and the timing of liftings in France and Australia.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| France | (9,167) | | (11.01) | | (4,711) | | (8.87) | | (16,403) | | (10.93) | | (13,751) | | (9.41) | |
| Netherlands | (128) | | (0.22) | | (55) | | (0.08) | | (225) | | (0.19) | | (198) | | (0.14) | |
| Germany | (367) | | (1.09) | | (795) | | (2.59) | | (1,322) | | (2.21) | | (1,737) | | (2.85) | |
| Central and Eastern Europe | (39) | | (9.32) | | (178) | | (4.05) | | (117) | | (8.62) | | (477) | | (5.10) | |
| International | (9,701) | | (3.83) | | (5,739) | | (3.27) | | (18,067) | | (3.69) | | (16,163) | | (2.77) | |
Royalties in our International core region are primarily incurred in France, where royalties include charges based on a percentage of sales and fixed per boe charges. Our production in Australia and Ireland is not subject to royalties.
Royalties increased in our International core region for the three and six months ended June 30, 2021 versus the prior year comparable periods mainly due to higher production and sales in France. Royalties as a percentage of sales for the three and six months ended June 30, 2021 of 5.3% and 5.5% decreased versus the prior year comparable periods of 7.5% and 6.9%. This is primarily due to the impact of RCDM royalties in France, which are levied on units of production and not subject to changes in commodity prices.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| France | (9,118) | | (10.95) | | (2,747) | | (5.17) | | (13,523) | | (9.01) | | (6,472) | | (4.43) | |
| Germany | (1,554) | | (4.63) | | (1,505) | | (4.90) | | (2,575) | | (4.30) | | (2,827) | | (4.64) | |
| Ireland | (1,078) | | (2.35) | | (1,179) | | (2.02) | | (2,189) | | (2.26) | | (2,324) | | (1.92) | |
| International | (11,750) | | (4.64) | | (5,431) | | (1.94) | | (18,287) | | (3.73) | | (11,623) | | (1.99) | |
Transportation expense increased for the three and six months ended June 30, 2021 versus the comparable prior year periods. This increase was primarily in France relating to higher volumes in 2021 and the use of incremental trucking in the Paris Basin following the conversion of the Grandpuits refinery.
Our production in Australia, Netherlands and Central and Eastern Europe is not subject to transportation expense.
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Australia | (10,408) | | (32.46) | | (10,659) | | (22.93) | | (20,146) | | (33.01) | | (28,032) | | (27.96) | |
| France | (12,591) | | (15.12) | | (10,016) | | (18.86) | | (24,382) | | (16.25) | | (25,915) | | (17.74) | |
| Netherlands | (7,895) | | (13.64) | | (7,526) | | (10.37) | | (15,306) | | (12.66) | | (16,441) | | (11.21) | |
| Germany | (6,807) | | (20.27) | | (5,912) | | (19.24) | | (13,109) | | (21.89) | | (10,827) | | (17.78) | |
| Ireland | (4,157) | | (9.08) | | (3,852) | | (6.59) | | (7,814) | | (8.06) | | (8,064) | | (6.65) | |
| Central and Eastern Europe | (49) | | (11.71) | | (164) | | (3.73) | | (110) | | (8.10) | | (254) | | (2.72) | |
| International | (41,907) | (16.56) | | (38,129) | (14.35) | | (80,867) | (16.50) | | (89,533) | (15.32) | |
Operating expenses on a dollar and per boe basis increased for Q2 2021 versus Q2 2020. This increase primarily resulted from higher inventory draws in France where operating expenses are deferred on the balance sheet until crude oil is sold at which point the related expenses are recognized into income.
| Vermilion Energy Inc. ■ Page 20 ■ 2021 Second Quarter Report |
For the six months ended June 30, 2021 versus the comparable prior year period, operating expenses decreased mainly due to a larger inventory build in Australia in 2021. Operating expenses on a per boe basis for the same periods increased mainly due to timing of inventory draws and higher facility costs in Germany combined with natural declines in Ireland and the Netherlands.
| Vermilion Energy Inc. ■ Page 21 ■ 2021 Second Quarter Report |
Consolidated Financial Performance Review
| Fund flows from operations |
| | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| | $M | $/boe | $M | $/boe | $M | $/boe | $M | $/boe |
| Sales | 407,179 | | 51.93 | | 193,013 | | 21.40 | | 775,316 | | 50.60 | | 521,327 | | 28.88 | |
| Royalties | (41,456) | | (5.29) | | (16,352) | | (1.81) | | (77,902) | | (5.08) | | (47,477) | | (2.63) | |
| Transportation | (21,834) | | (2.78) | | (16,365) | | (1.81) | | (38,855) | | (2.54) | | (33,695) | | (1.87) | |
| Operating | (99,737) | | (12.72) | | (99,175) | | (11.00) | | (195,978) | | (12.79) | | (220,313) | | (12.21) | |
| General and administration | (11,432) | | (1.46) | | (16,912) | | (1.88) | | (23,162) | | (1.51) | | (30,229) | | (1.67) | |
| Corporate income tax recovery (expense) | (691) | | (0.09) | | (158) | | (0.02) | | 654 | | 0.04 | | (732) | | (0.04) | |
| PRRT | (1,459) | | (0.19) | | (3,219) | | (0.36) | | (2,873) | | (0.19) | | (12,475) | | (0.69) | |
| Interest expense | (18,862) | | (2.41) | | (17,887) | | (1.98) | | (38,097) | | (2.49) | | (37,869) | | (2.10) | |
| Realized (loss) gain on derivatives | (39,574) | | (5.05) | | 54,704 | | 6.07 | | (65,207) | | (4.26) | | 104,123 | | 5.77 | |
| Realized foreign exchange (loss) gain | (1,958) | | (0.25) | | 3,972 | | 0.44 | | (7,139) | | (0.47) | | 12,495 | | 0.69 | |
| Realized other income (expense) | 2,766 | | 0.35 | | 231 | | 0.03 | | 8,236 | | 0.54 | | (3,078) | | (0.17) | |
| Fund flows from operations | 172,942 | | 22.04 | | 81,852 | | 9.08 | | 334,993 | | 21.85 | | 252,077 | | 13.96 | |
Fluctuations in fund flows from operations may occur as a result of changes in production levels, commodity prices, and costs to produce petroleum and natural gas. In addition, fund flows from operations may be 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 the consolidated balance sheet. When the crude oil inventory is subsequently drawn down, the related expenses are recognized within profit or loss.
General and administration
| • | General and administration expense decreased for the three and six months ended June 30, 2021 versus the comparable prior year periods primarily due to work-force reductions made in 2020. |
PRRT and corporate income taxes
| • | PRRT decreased for the three months ended June 30, 2021 versus the prior year comparable periods due to higher sales in Australia which were offset by increased capital expenditures, and the six months ended June 30, 2021 versus the prior year comparable periods due to lower sales in Australia. |
| • | Corporate income taxes for the three and six months ended June 30, 2021 versus the prior year comparable periods remained relatively consistent. |
Interest expense
| • | Interest expense remained relatively consistent for the three and six months ended June 30, 2021 versus the prior year comparable periods. |
Realized gain or loss on derivatives
| • | Realized gains on derivatives in 2020 relate to receipts for European natural gas and crude oil hedges. For the three and six months ended June 30, 2021, we recorded realized losses on our crude oil and natural gas prices due to higher commodity pricing compared to the strike prices on our hedges. |
| • | A listing of derivative positions as at June 30, 2021 is included in “Supplemental Table 2” of this MD&A. |
Realized other income
| • | Realized other income for the three and six months ended June 30, 2021 primarily relates to amounts for funding under the Saskatchewan Accelerated Site Closure program to complete abandonment and reclamation on inactive oil and gas wells and facilities. Realized other expense for the prior year comparable period relates primarily to amounts uncertain to be received pursuant to a negotiated settlement of a legal matter. |
| Vermilion Energy Inc. ■ Page 22 ■ 2021 Second Quarter Report |
The following table shows a reconciliation from fund flows from operations to net earnings (loss):
| ($M) | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
| Fund flows from operations | 172,942 | | 81,852 | | 334,993 | | 252,077 | |
| Equity based compensation | (10,536) | | (9,164) | | (27,076) | | (22,161) | |
| Unrealized (loss) gain on derivative instruments | (79,408) | | (3,771) | | (73,966) | | 5,545 | |
| Unrealized foreign exchange loss | (18,298) | | (7,410) | | (44,208) | | (17,392) | |
| Accretion | (10,863) | | (7,288) | | (21,370) | | (17,026) | |
| Depletion and depreciation | (149,651) | | (106,707) | | (255,664) | | (264,514) | |
| Deferred tax (expense) recovery | (63,526) | | 51,126 | | (234,754) | | 308,668 | |
| Gain on business combinations | 17,198 | | - | | 17,198 | | - | |
| Impairment reversal (expense) | 593,606 | | (69,713) | | 1,256,472 | | (1,634,567) | |
| Unrealized other expense | (190) | | (215) | | (387) | | (424) | |
| Net earnings (loss) | 451,274 | | (71,290) | | 951,238 | | (1,389,794) | |
Fluctuations in net earnings from period-to-period are caused by changes in both cash and non-cash based income and charges. Cash based items are reflected in fund flows from operations. 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 gains resulting from business combinations or charges resulting from impairment or impairment reversals.
Equity based compensation
Equity based compensation expense relates primarily to non-cash compensation expense attributable to long-term incentives granted to directors, officers, and employees under security-based arrangements. Equity based compensation expense increased for the three and six months ended June 30, 2021 versus the prior year comparable periods due to the higher value of VIP awards outstanding in the current periods.
Unrealized gain or loss on derivative instruments
Unrealized gain or loss on derivative instruments arise as a result of changes in forecasts for future prices and rates. 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 future commodity price forecasts decline and vice-versa. As derivative instruments are settled, the unrealized gain or loss previously recognized is reversed, and the settlement results in a realized gain or loss on derivative instruments.
USD-to-CAD cross currency interest rate swaps and foreign exchange swaps may be entered into to hedge the foreign exchange movements on USD borrowings on our revolving credit facility. As such, unrealized gains and losses on our cross currency interest swaps are offset by unrealized losses and gains on foreign exchange relating to the underlying USD borrowings from our revolving credit facility.
For the three months ended June 30, 2021, we recognized a net unrealized loss on derivative instruments of $79.4 million. This consists of unrealized losses of $111.8 million on our European natural gas commodity derivative instruments and $6.4 million on our North American natural gas commodity derivative instruments. These unrealized losses are partially offset by unrealized gains of $22.8 million on our USD-to-CAD foreign exchange swaps, $9.5 million on our crude oil commodity derivative instruments and $6.5 million on our equity swaps.
For the six months ended June 30, 2021, we recognized a net unrealized loss on derivative instruments of $74.0 million. This consists of unrealized losses of $124.9 million on our European natural gas commodity derivative instruments, $10.3 million on our North American natural gas commodity derivative instruments and $1.0 million on our crude oil commodity derivative instruments. These unrealized losses are partially offset by unrealized gains of $42.8 million on our USD-to-CAD foreign exchange swaps and $19.4 million on our equity swaps.
Unrealized foreign exchange gains or losses
As a result of Vermilion’s international operations, Vermilion has monetary assets and liabilities denominated in currencies other than the Canadian dollar. These monetary assets and liabilities include cash, receivables, payables, long-term debt, derivative instruments and intercompany loans. Unrealized foreign exchange gains and losses result from translating these monetary assets and liabilities from their underlying currency to the Canadian dollar.
In 2021, unrealized foreign exchange gains and losses primarily resulted from:
| • | The translation of Euro denominated intercompany loans from Vermilion Energy Inc. to our international subsidiaries. An appreciation in the Euro against the Canadian dollar will result in an unrealized foreign exchange gain (and vice-versa). Under IFRS, the offsetting foreign exchange loss or gain is recorded as a currency translation adjustment within other comprehensive income. As a result, consolidated comprehensive income reflects the offsetting of these translation adjustments while net earnings reflects only the parent company's side of the translation. |
| Vermilion Energy Inc. ■ Page 23 ■ 2021 Second Quarter Report |
| • | The translation of USD borrowings on our revolving credit facility. The unrealized foreign exchange gains or losses on these borrowings are offset by unrealized derivative gains or losses on associated USD-to-CAD cross currency interest rate swaps (discussed further below). |
| • | The translation of our USD denominated senior unsecured notes prior to June 12, 2019 and from May 5, 2020 onward. During the period between June 12, 2019 and May 5, 2020 the USD senior notes were hedged by a USD-to-CAD cross currency interest rate swap. Subsequent to the termination of these instruments, amounts previously recognized in the hedge accounting reserve will be recognized into earnings through unrealized foreign exchange loss over the period of the hedged cash flows. |
For the three months ended June 30, 2021, we recognized a net unrealized foreign exchange loss of $18.3 million due to unrealized losses of $16.8 million on intercompany loans due to the Euro weakening 1.0% against the Canadian dollar in Q2 2021 and $10.0 million on our USD borrowings from our revolving credit facility. These were partially offset by the impact of the US dollar weakening 2.3% against the Canadian dollar in Q2 2021 resulting in an unrealized gain of $8.5 million on our senior unsecured notes.
For the six months ended June 30, 2021, we recognized a net unrealized foreign exchange loss of $44.2 million. This was due to unrealized losses of $33.0 million on our USD borrowings from our revolving credit facility and $24.3 million on intercompany loans due to the Euro weakening 5.9% against the Canadian dollar. These were partially offset by the impact of the US dollar weakening 3.4% against the Canadian dollar resulting in an unrealized gain of $13.1 million on our senior unsecured notes.
As at June 30, 2021, a $0.01 appreciation of the Euro against the Canadian dollar would result in a $0.7 million increase to net earnings as a result of an unrealized gain on foreign exchange. In contrast, a $0.01 appreciation of the US dollar against the Canadian dollar would result in a $3.0 million decrease to net earnings as a result of an unrealized loss on foreign exchange.
Accretion
Accretion expense is recognized to update the present value of the asset retirement obligation balance. For the three and six months ended June 30, 2021 versus the comparable prior year periods accretion expense increased primarily due to additional obligations recognized at the end of 2020 partially offset by the weakening of the Euro against the Canadian dollar.
Depletion and depreciation
Depletion and depreciation expense is recognized to allocate the cost of capital assets over the useful life of the respective assets. Depletion and depreciation expense per unit of production is determined for each depletion unit (which are groups of assets within a specific production area that have similar economic lives) by dividing the sum of the net book value of capital assets and future development costs by total proved plus probable reserves.
Fluctuations in depletion and depreciation expense are primarily the result of changes in produced crude oil and natural gas volumes, and changes in depletion and depreciation per unit. Fluctuations in depletion and depreciation per unit are the result of changes in reserves, depletable base (net book value of capital assets and future development costs), and relative production mix.
Depletion and depreciation on a per boe basis for the three and six months ended June 30, 2021 of $19.09 and $16.69 increased from $11.83 and $14.65 in the prior year comparable periods primarily due to impairment reversals recorded in Q1 2021.
Deferred tax
Deferred tax assets arise when the tax basis of an asset exceeds its accounting basis (known as a deductible temporary difference). Conversely, deferred tax liabilities arise when the tax basis of an asset is less than its accounting basis (known as a taxable temporary difference). Deferred tax assets are recognized only to the extent that it is probable that there are future taxable profits against which the deductible temporary difference can be utilized. Deferred tax assets and liabilities are measured at the enacted or substantively enacted tax rate that is expected to apply when the asset is realized, or the liability is settled.
As such, fluctuations in deferred tax expenses and recoveries primarily arise as a result of: changes in the accounting basis of an asset or liability without a corresponding tax basis change (e.g. when derivative assets and liabilities are marked-to-market or when accounting depletion differs from tax depletion), changes in available tax losses (e.g. if they are utilized to offset taxable income), changes in estimated future taxable profits resulting in a derecognition or recognition of deferred tax assets, and changes in enacted or substantively enacted tax rates.
For the three and six months ended June 30, 2021, deferred tax expense was recognized of $63.5 million and $234.8 million respectively compared to a deferred tax recovery of $51.1 million and $308.7 million for the prior year comparable periods primarily due to impairment reversals in 2021, partially offset by the recognition of a portion of non-expiring tax loss pools in Ireland that are expected to be utilized due to an increase in forecast commodity prices.
| Vermilion Energy Inc. ■ Page 24 ■ 2021 Second Quarter Report |
Impairment
Impairment losses are recognized when indicators of impairment arise and the carrying amount of a cash generating unit ("CGU") exceeds its recoverable amount, determined as the higher of fair value less costs of disposal or value-in-use.
In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGUs due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded.
In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast crude oil prices versus 2020 when impairment charges were taken. As a result of the indicators of impairment reversal, the Company performed impairment reversal tests on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded.
In the first quarter of 2020, indicators of impairment were present due to global commodity price forecasts deteriorating from decreases in demand and an increase of supply around the world. As a result of the indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment calculations completed, the Company recognized non-cash impairment charges of $1.2 billion (net of $0.4 billion income tax recovery).
In the second quarter of 2020, indicators of impairment were present due to the Company’s market capitalization falling below the carrying value of its net assets as at June 30, 2020. As a result of the indicators of impairment, the Company performed an impairment test. The recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment calculations completed, the Company recognized non-cash impairment charges of $53.1 million (net of $16.6 million income tax recovery).
Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
Gain on business combinations
A gain on business combination is recognized when the total consideration paid in a business combination is less than the fair value of the net assets acquired. For the three months ended June 30, 2021, a gain of $17.2 million was recognized on our purchase of assets in Germany.
| Vermilion Energy Inc. ■ Page 25 ■ 2021 Second Quarter Report |
Financial Position Review
We regularly review whether our forecast of fund flows from operations is sufficient to finance planned capital expenditures, and abandonment and reclamation expenditures. To the extent that fund flows from operations forecasts are not expected to be sufficient to fulfill such expenditures, we will evaluate our ability to finance any shortfall by reducing some or all categories of expenditures, with issuances of equity, or with debt (including borrowing using the unutilized capacity of our existing revolving credit facility). We have a long-term goal of achieving and maintaining a ratio of net debt to fund flows from operations of less than 1.5.
As at June 30, 2021, we have a ratio of net debt to fund flows from operations of 3.43. We will continue to monitor for changes in forecasted fund flows from operations and, as appropriate, will adjust our exploration and development capital plans (and associated growth targets) to minimize any further increase to debt. As commodity prices improve, we intend to strengthen our balance sheet through the reduction of debt.
Net debt is reconciled to long-term debt, as follows:
| | As at |
| ($M) | Jun 30, 2021 | | Dec 31, 2020 | |
| Long-term debt | 1,769,866 | | 1,933,848 | |
| Current liabilities | 528,180 | | 433,128 | |
| Current assets | (292,774) | | (260,993) | |
| Net debt | 2,005,272 | | 2,105,983 | |
| | | |
| Ratio of net debt to four quarter trailing fund flows from operations | 3.43 | | 4.19 | |
As at June 30, 2021, net debt decreased to $2.0 billion (December 31, 2020 - $2.1 billion) primarily as a result of free cash flow generated for the six months ended June 30, 2021 of $172.5 million, partially offset by timing of payments and increased current derivative liabilities due to increased commodity prices. We will draw on unutilized capacity of the revolving credit facility to fund working capital deficiencies. The ratio of net debt to four quarter trailing fund flows from operations decreased to 3.43 (December 31, 2020 - 4.19) mainly due to the decrease in net debt combined with higher four quarter trailing fund flows from operations.
The balances recognized on our balance sheet are as follows:
| | As at |
| ($M) | Jun 30, 2021 | | Dec 31, 2020 | |
| Revolving credit facility | 1,403,877 | | 1,555,215 | |
| Senior unsecured notes | 365,989 | | 378,633 | |
| Long-term debt | 1,769,866 | | 1,933,848 | |
Revolving Credit Facility
As at June 30, 2021, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with terms and outstanding positions as follows:
| | As at |
| ($M) | Jun 30, 2021 | | Dec 31, 2020 | |
| Total facility amount | 2,100,000 | | 2,100,000 | |
| Amount drawn | (1,403,877) | | (1,555,215) | |
| Letters of credit outstanding | (15,489) | | (23,210) | |
| Unutilized capacity | 680,634 | | 521,575 | |
| Vermilion Energy Inc. ■ Page 26 ■ 2021 Second Quarter Report |
As at June 30, 2021, the revolving credit facility was subject to the following financial covenants:
| | | As at |
| Financial covenant | Limit | Jun 30, 2021 | | Dec 31, 2020 | |
| Consolidated total debt to consolidated EBITDA | Less than 4.0 | 2.76 | | 3.48 | |
| Consolidated total senior debt to consolidated EBITDA | Less than 3.5 | 2.19 | | 2.82 | |
| Consolidated EBITDA to consolidated interest expense | Greater than 2.5 | 9.09 | | 8.12 | |
Our financial covenants include financial measures defined within our revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by our revolving credit facility agreement as follows:
| • | Consolidated total debt: Includes all amounts classified as “Long-term debt”, “Current portion of long-term debt”, and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on our balance sheet. |
| • | Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. |
| • | Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. |
| • | Total interest expense: Includes all amounts classified as "Interest expense", but excludes interest on operating leases as defined under IAS 17. |
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby if our security adjusted liability management ratings fall below specified limits in a province, a portion of the asset retirement obligations are included in the definitions of consolidated total debt and consolidated total senior debt. An event of default occurs if our security adjusted liability management ratings breach additional lower limits for a period greater than 90 days. As of June 30, 2021, Vermilion's liability management ratings were higher than the specified levels, and as such, no amounts relating to asset retirement obligations were included in the calculation of consolidated total debt and consolidated total senior debt.
Senior Unsecured Notes
On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, paid semi-annually on March 15 and September 15, and mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally in right of payment with existing and future senior indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
| Year | Redemption price |
| 2021 | 102.813 | % |
| 2022 | 101.406 | % |
| 2023 and thereafter | 100.000 | % |
| Vermilion Energy Inc. ■ Page 27 ■ 2021 Second Quarter Report |
The following table outlines our dividend payment history:
| Date | Monthly dividend per unit or share |
| January 2003 to December 2007 | $0.170 |
| January 2008 to December 2012 | $0.190 |
| January 2013 to December 2013 | $0.200 |
| January 2014 to March 2018 | $0.215 |
| April 2018 to February 2020 | $0.230 |
| March 2020 | $0.115 |
In April 2020, we suspended our monthly dividend to strengthen the financial position of the Company. Our ability to restore a dividend will be dependent upon stronger commodity prices combined with a balance sheet that reflects the Company's ability to sustain such dividend over the long-term.
The following table reconciles the change in shareholders’ capital:
| Shareholders’ Capital | Number of Shares ('000s) | | Amount ($M) | |
| Balance at December 31, 2020 | 158,724 | | 4,181,160 | |
| Vesting of equity based awards | 2,113 | | 44,852 | |
| Equity based compensation | 838 | | 7,693 | |
| Share-settled dividends on vested equity based awards | 218 | | 1,920 | |
| Balance at June 30, 2021 | 161,893 | | 4,235,625 | |
As at June 30, 2021, there were approximately 7.1 million equity based compensation awards outstanding. As at August 13, 2021, there were approximately 162.0 million common shares issued and outstanding.
Asset Retirement Obligations
As at June 30, 2021, asset retirement obligations were $809.2 million compared to $467.7 million as at December 31, 2020. The increase in asset retirement obligations is primarily attributable to a decrease in the credit-adjusted risk-free rate from December 31, 2020 to June 30, 2021. This increase was partially offset by the Euro weakening against the Canadian dollar and obligations settled.
The present value of the obligation is calculated using a credit-adjusted risk-free rate, calculated using a credit spread added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined as the yield to maturity on its senior unsecured notes at the end of the reporting period.
The risk-free rates and credit spread used as inputs to discount the obligations were as follows:
| | Jun 30, 2021 | Dec 31, 2020 | Change |
| Credit spread added to below noted risk-free rates | 4.7 | % | 9.5 | % | (4.8) | % |
| Country specific risk-free rate | | | |
| Canada | 1.9 | % | 1.2 | % | 0.7 | % |
| United States | 2.1 | % | 1.6 | % | 0.5 | % |
| France | 0.8 | % | 0.3 | % | 0.5 | % |
| Netherlands | (0.3) | % | (0.6) | % | 0.3 | % |
| Germany | 0.3 | % | (0.2) | % | 0.5 | % |
| Ireland | 0.5 | % | (0.1) | % | 0.6 | % |
| Australia | 1.8 | % | 1.3 | % | 0.5 | % |
| Vermilion Energy Inc. ■ Page 28 ■ 2021 Second Quarter Report |
Risks and Uncertainties
Vermilion is exposed to various market and operational risks. For a discussion of these risks, please see Vermilion's MD&A and Annual Information Form, each for the year ended December 31, 2020 available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
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. There have been no material changes to our critical accounting estimates used in applying accounting policies for the six months ended June 30, 2021. Further information, including a discussion of critical accounting estimates, can be found in the notes to the Consolidated Financial Statements and annual MD&A for the year ended December 31, 2020, available on SEDAR at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
Off Balance Sheet Arrangements
We have not entered into any guarantee or off balance sheet arrangements that would materially impact our financial position or results of operations.
Internal Control Over Financial Reporting
Other than Vermilion's response to COVID-19, there has been no change in Vermilion’s internal control over financial reporting ("ICFR") during the period covered by this MD&A that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
As a result of COVID-19, our global workforce shifted to a primarily work from home environment beginning in March 2020. This change to remote working was rapid and included both our employees as well as a large extended workforce across all regions in which we operate. While pre-existing controls were not specifically designed to operate in our current work from home operating environment, we believe that our internal controls over financial reporting continue to be effective. We took precautionary actions to re-evaluate and refine our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely.
Recently Adopted Accounting Pronouncements
Vermilion did not adopt any new accounting pronouncements as at June 30, 2021.
Disclosure Controls and Procedures
Our officers have established and maintained disclosure controls and procedures and evaluated the effectiveness of these controls in conjunction with our filings.
As of June 30, 2021, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the President, for this specific purpose of acting in the capacity of Chief Executive Officer, and Chief Financial Officer have concluded and certified that our disclosure controls and procedures are effective.
| Vermilion Energy Inc. ■ Page 29 ■ 2021 Second Quarter Report |
Supplemental Table 1: Netbacks
The following table includes financial statement information on a per unit basis by business unit. Liquids includes crude oil, condensate, and NGLs. Natural gas sales volumes have been converted on a basis of six thousand cubic feet of natural gas to one barrel of oil equivalent.
| | Q2 2021 | YTD 2021 | Q2 2020 | YTD 2020 |
| | Liquids | Natural Gas | Total | Liquids | Natural Gas | Total | Total | Total |
| | $/bbl | $/mcf | $/boe | $/bbl | $/mcf | $/boe | $/boe | $/boe |
| Canada | | | | | | | | |
| Sales | 62.13 | 2.71 | 41.62 | 59.63 | 3.15 | 41.57 | 17.41 | | 22.84 | |
| Royalties | (9.17) | (0.14) | (5.43) | (8.27) | (0.16) | (5.04) | (1.18) | | (2.10) | |
| Transportation | (2.61) | (0.20) | (1.99) | (2.73) | (0.21) | (2.08) | (1.82) | | (1.93) | |
| Operating | (13.28) | (1.35) | (10.95) | (13.58) | (1.34) | (11.11) | (9.96) | | (10.88) | |
| Operating netback | 37.07 | 1.02 | 23.25 | 35.05 | 1.44 | 23.34 | 4.45 | | 7.93 | |
| General and administration | | | (1.20) | | | (1.07) | (1.51) | | (1.03) | |
| Fund flows from operations netback | | | 22.05 | | | 22.27 | 2.94 | | 6.90 | |
| United States | | | | | | | | |
| Sales | 63.65 | 2.87 | 52.24 | 60.95 | 7.63 | 57.38 | 26.00 | | 30.58 | |
| Royalties | (16.55) | (1.02) | (13.98) | (15.72) | (2.16) | (15.08) | (6.28) | | (7.57) | |
| Transportation | (0.84) | - | (0.64) | (0.83) | — | (0.63) | (0.77) | | (0.45) | |
| Operating | (10.02) | (1.64) | (9.97) | (10.31) | (1.66) | (10.23) | (6.17) | | (8.98) | |
| Operating netback | 36.24 | 0.21 | 27.65 | 34.09 | 3.81 | 31.44 | 12.78 | | 13.58 | |
| General and administration | | | (2.13) | | | (2.21) | (2.94) | | (3.63) | |
| Fund flows from operations netback | | | 25.52 | | | 29.23 | 9.84 | | 9.95 | |
| France | | | | | | | | |
| Sales | 81.80 | — | 81.80 | 79.75 | — | 79.75 | 43.94 | | 54.85 | |
| Royalties | (11.01) | — | (11.01) | (10.93) | — | (10.93) | (8.87) | | (9.41) | |
| Transportation | (10.95) | — | (10.95) | (9.01) | — | (9.01) | (5.17) | | (4.43) | |
| Operating | (15.12) | — | (15.12) | (16.25) | — | (16.25) | (18.86) | | (17.74) | |
| Operating netback | 44.72 | — | 44.72 | 43.56 | — | 43.56 | 11.04 | | 23.27 | |
| General and administration | | | (3.86) | | | (3.75) | (6.59) | | (4.76) | |
| Current income taxes | | | - | | | — | — | | — | |
| Fund flows from operations netback | | | 40.86 | | | 39.81 | 4.45 | | 18.51 | |
| Netherlands | | | | | | | | |
| Sales | 67.76 | 9.34 | 56.23 | 52.53 | 8.42 | 50.52 | 14.69 | | 20.63 | |
| Royalties | — | (0.04) | (0.22) | — | (0.03) | (0.19) | (0.08) | | (0.14) | |
| Operating | — | (2.31) | (13.64) | — | (2.14) | (12.66) | (10.37) | | (11.21) | |
| Operating netback | 67.76 | 6.99 | 42.37 | 52.53 | 6.25 | 37.67 | 4.24 | | 9.28 | |
| General and administration | | | (0.19) | | | (0.31) | (0.29) | | (0.52) | |
| Current income taxes | | | (4.08) | | | (1.95) | 0.35 | | 0.18 | |
| Fund flows from operations netback | | | 38.10 | | | 35.41 | 4.30 | | 8.94 | |
| Germany | | | | | | | | |
| Sales | 78.00 | 8.83 | 60.36 | 75.58 | 8.07 | 55.73 | 21.33 | | 27.95 | |
| Royalties | (1.24) | (0.17) | (1.09) | (0.95) | (0.45) | (2.21) | (2.59) | | (2.85) | |
| Transportation | (10.82) | (0.34) | (4.63) | (9.68) | (0.39) | (4.30) | (4.90) | | (4.64) | |
| Operating | (23.71) | (3.14) | (20.27) | (23.60) | (3.54) | (21.89) | (19.24) | | (17.78) | |
| Operating netback | 42.23 | 5.18 | 34.37 | 41.35 | 3.69 | 27.33 | (5.40) | | 2.68 | |
| General and administration | | | (4.34) | | | (4.31) | (4.28) | | (5.02) | |
| Fund flows from operations netback | | | 30.03 | | | 23.02 | (9.68) | | (2.34) | |
| Ireland | | | | | | | | |
| Sales | — | 10.98 | 65.93 | — | 9.83 | 59.03 | 12.43 | | 20.50 | |
| Transportation | — | (0.39) | (2.35) | — | (0.38) | (2.26) | (2.02) | | (1.92) | |
| Operating | — | (1.51) | (9.08) | — | (1.34) | (8.06) | (6.59) | | (6.65) | |
| Operating netback | — | 9.08 | 54.50 | — | 8.11 | 48.71 | 3.82 | | 11.93 | |
| General and administration | | | (0.05) | | | 0.71 | 0.18 | | (0.23) | |
| Fund flows from operations netback | | | 54.45 | | | 49.42 | 4.00 | | 11.70 | |
| Vermilion Energy Inc. ■ Page 30 ■ 2021 Second Quarter Report |
| | Q2 2021 | YTD 2021 | Q2 2020 | YTD 2020 |
| | Liquids | Natural Gas | Total | Liquids | Natural Gas | Total | Total | Total |
| | $/bbl | $/mcf | $/boe | $/bbl | $/mcf | $/boe | $/boe | $/boe |
| Australia | | | | | | | | |
| Sales | 97.49 | — | 97.49 | 96.07 | — | 96.07 | 61.91 | | 80.55 | |
| Operating | (32.46) | — | (32.46) | (33.01) | — | (33.01) | (22.93) | | (27.96) | |
| PRRT (1) | (4.55) | — | (4.55) | (4.71) | — | (4.71) | (6.93) | | (12.44) | |
| Operating netback | 60.48 | — | 60.48 | 58.35 | — | 58.35 | 32.05 | | 40.15 | |
| General and administration | | | (2.35) | | | (2.42) | (1.91) | | (1.76) | |
| Current income taxes | | | 5.84 | | | 5.62 | (0.67) | | (0.65) | |
| Fund flows from operations netback | | | 63.97 | | | 61.55 | 29.47 | | 37.74 | |
| | | | | | | | | |
| Total Company | | | | | | | | |
| Sales | 69.11 | 5.24 | 51.93 | 66.38 | 5.37 | 50.60 | 21.40 | | 28.88 | |
| Realized hedging (loss) gain | (4.67) | (0.92) | (5.05) | (4.67) | (0.63) | (4.26) | 6.07 | | 5.77 | |
| Royalties | (9.08) | (0.13) | (5.29) | (8.49) | (0.19) | (5.08) | (1.81) | | (2.63) | |
| Transportation | (4.12) | (0.20) | (2.78) | (3.67) | (0.20) | (2.54) | (1.81) | | (1.87) | |
| Operating | (15.10) | (1.65) | (12.72) | (15.45) | (1.62) | (12.79) | (11.00) | | (12.21) | |
| PRRT (1) | (0.34) | — | (0.19) | (0.35) | — | (0.19) | (0.36) | | (0.69) | |
| Operating netback | 35.80 | 2.34 | 25.90 | 33.75 | 2.73 | 25.74 | 12.49 | | 17.25 | |
| General and administration | | | (1.46) | | | (1.51) | (1.88) | | (1.67) | |
| Interest expense | | | (2.41) | | | (2.49) | (1.98) | | (2.10) | |
| Realized foreign exchange loss | | | (0.25) | | | (0.47) | 0.44 | | 0.69 | |
| Other income | | | 0.35 | | | 0.54 | 0.03 | | (0.17) | |
| Corporate income taxes | | | (0.09) | | | 0.04 | (0.02) | | (0.04) | |
| Fund flows from operations netback | | | 22.04 | | | 21.85 | 9.08 | | 13.96 | |
| (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. |
| Vermilion Energy Inc. ■ Page 31 ■ 2021 Second Quarter Report |
Supplemental Table 2: Hedges
The prices in these tables may represent the weighted averages for several contracts with foreign currency amounts translated to the disclosure currency using forward rates as at the month-end date. The weighted average price for the portfolio of options listed below may not have the same payoff profile as the individual contracts. As such, the presentation of the weighted average prices is purely for indicative purposes.
The following tables outline Vermilion’s outstanding risk management positions as at June 30, 2021:
| | Unit | Currency | Daily Bought Put Volume | | Weighted Average Bought Put Pric | e | Daily Sold Call Volume | | Weighted Average Sold Call Price | | Daily Sold Put Volume | | Weighted Average Sold Put Price | | Daily Sold Swap Volume | | Weighted Average Sold Swap Price | | Daily Bought Swap Volume | | Weighted Average Bought Swap Price | |
| Dated Brent | | |
| Q3 2021 | bbl | USD | 500 | | 55.00 | | 500 | | 63.25 | | 500 | | 47.50 | | 500 | | 52.00 | | — | | — | |
| Q4 2021 | bbl | USD | — | | — | | — | | — | | — | | — | | 500 | | 52.00 | | — | | — | |
| Q1 2022 | bbl | USD | — | | — | | — | | — | | — | | — | | 500 | | 52.00 | | — | | — | |
| WTI | | |
| Q3 2021 | bbl | USD | 1,500 | | 57.50 | | 1,500 | | 73.67 | | 1,500 | | 48.33 | | — | | — | | — | | — | |
| Q4 2021 | bbl | USD | 1,000 | | 60.00 | | 1,000 | | 80.50 | | 1,000 | | 50.00 | | — | | — | | — | | — | |
| Q1 2022 | bbl | USD | 500 | | 60.00 | | 500 | | 70.00 | | 500 | | 45.00 | | — | | — | | — | | — | |
| Q2 2022 | bbl | USD | 500 | | 60.00 | | 500 | | 70.00 | | 500 | | 45.00 | | — | | — | | — | | — | |
| AECO | | |
| Q3 2021 | mcf | CAD | — | | — | | — | | — | | — | | — | | 9,478 | | 2.12 | | — | | — | |
| Q4 2021 | mcf | CAD | — | | — | | — | | — | | — | | — | | 3,194 | | 2.12 | | — | | —- | |
| AECO Basis (AECO less NYMEX Henry Hub) | | |
| Q3 2021 | mcf | USD | — | | — | | — | | — | | — | | — | | 45,000 | | (1.08) | | — | | — | |
| Q4 2021 | mcf | USD | — | | — | | — | | — | | — | | — | | 35,054 | | (1.09) | | — | | — | |
| Q1 2022 | mcf | USD | — | | — | | — | | — | | — | | — | | 30,000 | | (1.10) | | — | | — | |
| Q2 2022 | mcf | USD | — | | — | | — | | — | | — | | — | | 35,000 | | (1.09) | | — | | — | |
| Q3 2022 | mcf | USD | — | | — | | — | | — | | — | | — | | 35,000 | | (1.09) | | — | | — | |
| Q4 2022 | mcf | USD | — | | — | | — | | — | | — | | — | | 11,793 | | (1.09) | | — | | — | |
| NYMEX Henry Hub | | |
| Q3 2021 | mcf | USD | 35,000 | | 2.72 | | 35,000 | | 3.12 | | — | | — | | 28,500 | | 2.83 | | — | | — | |
| Q4 2021 | mcf | USD | 31,685 | | 2.72 | | 31,685 | | 3.12 | | — | | — | | 21,870 | | 2.78 | | — | | — | |
| Ventura Basis (Ventura less NYMEX Henry Hub) | | |
| Q3 2021 | mcf | USD | — | | — | | — | | — | | — | | — | | — | | — | | 10,000 | | 0.05 | |
| Q4 2021 | mcf | USD | — | | — | | — | | — | | — | | — | | — | | — | | 3,370 | | 0.05 | |
| Conway Propane | | | | | | | | | — | | — | |
| Q3 2021 | bbl | USD | — | | — | | — | | — | | — | | — | | 500 | | 50% WTI | — | | — | |
| Q4 2021 | bbl | USD | —- | | — | | — | | — | | — | | — | | 168 | | 50% WTI | — | | — | |
| Vermilion Energy Inc. ■ Page 32 ■ 2021 Second Quarter Report |
| | Unit | Currency | Daily Bought Put Volume | | Weighted Average Bought Put Price | | Daily Sold Call Volume | | Weighted Average Sold Call Price | | Daily Sold Put Volume | | Weighted Average Sold Put Price | | Daily Sold Swap Volume | | Weighted Average Sold Swap Price | | Daily Bought Swap Volume | | Weighted Average Bought Swap Price | |
| NBP | | |
| Q3 2021 | mcf | EUR | 49,135 | | 5.37 | | 49,135 | | 5.62 | | 49,135 | | 3.87 | | 2,457 | | 4.69 | | — | | — | |
| Q4 2021 | mcf | EUR | 58,962 | | 5.37 | | 58,962 | | 5.56 | | 58,962 | | 3.88 | | 2,457 | | 4.69 | | — | | — | |
| Q1 2022 | mcf | EUR | 34,394 | | 5.18 | | 34,394 | | 5.95 | | 34,394 | | 3.63 | | 4,913 | | 4.91 | | — | | — | |
| Q2 2022 | mcf | EUR | 27,024 | | 5.07 | | 27,024 | | 5.73 | | 27,024 | | 3.50 | | 4,913 | | 4.91 | | — | | — | |
| Q3 2022 | mcf | EUR | 17,197 | | 5.00 | | 17,197 | | 5.79 | | 17,197 | | 3.56 | | 4,913 | | 4.91 | | — | | — | |
| Q4 2022 | mcf | EUR | 17,197 | | 5.00 | | 17,197 | | 5.78 | | 17,197 | | 3.56 | | 4,913 | | 4.91 | | — | | — | |
| Q1 2023 | mcf | EUR | 9,827 | | 5.02 | | 9,827 | | 5.72 | | 9,827 | | 3.59 | | — | | — | | — | | — | |
| Q2 2023 | mcf | EUR | 2,457 | | 5.86 | | 2,457 | | 7.62 | | 2,457 | | 4.40 | | — | | — | | — | | — | |
| TTF | | |
| Q3 2021 | mcf | EUR | 2,457 | | 4.25 | | 2,457 | | 4.07 | | 2,457 | | 2.93 | | — | | — | | — | | — | |
| Q1 2022 | mcf | EUR | 2,457 | | 4.84 | | 2,457 | | 5.64 | | 2,457 | | 3.52 | | — | | — | | — | | — | |
| Q2 2022 | mcf | EUR | 2,457 | | 4.84 | | 2,457 | | 5.64 | | 2,457 | | 3.52 | | — | | — | | — | | — | |
| Q3 2022 | mcf | EUR | 2,457 | | 4.84 | | 2,457 | | 5.64 | | 2,457 | | 3.52 | | — | | — | | — | | — | |
| Q4 2022 | mcf | EUR | 2,457 | | 4.84 | | 2,457 | | 5.64 | | 2,457 | | 3.52 | | — | | — | | — | | — | |
| Q1 2023 | mcf | EUR | 2,457 | | 4.84 | | 2,457 | | 5.64 | | 2,457 | | 3.52 | | — | | — | | — | | — | |
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| VET Equity Swaps | | | Initial Share Price | Share Volume | |
| Swap | Jan 2020 - Apr 2023 | | | | 20.9788 | | CAD | 2,250,000 | |
| Swap | Jan 2020 - Apr 2023 | | | | 22.4587 | | CAD | 1,500,000 | |
| Foreign Currency Swaps | Notional Amount | | Notional Amount | Average Rate | |
| Swap | July 2021 | 1,131,404,500 | | USD | | 1,400,000,000 | | CAD | 1.2374 | |
| | | | | | | | | | | |
| Vermilion Energy Inc. ■ Page 33 ■ 2021 Second Quarter Report |
Supplemental Table 3: Capital Expenditures and Acquisitions
| By classification ($M) | Q2 2021 | | Q2 2020 | | YTD 2021 | | YTD 2020 | |
| Drilling and development | 77,703 | | 42,383 | | 157,215 | | 269,816 | |
| Exploration and evaluation | 1,473 | | (109) | | 5,324 | | 6,162 | |
| Capital expenditures | 79,176 | | 42,274 | | 162,539 | | 275,978 | |
| | | | | |
| Acquisitions | 12,196 | | 2,932 | | 12,589 | | 14,269 | |
| Contingent consideration | 330 | | — | | 330 | | — | |
| Long-term debt net of working capital assumed | (7) | | — | | (7) | | — | |
| Acquisitions | 11,859 | | 2,932 | | 12,252 | | 14,269 | |
| | | | | |
| By category ($M) | Q2 2021 | | Q2 2020 | | YTD 2021 | | YTD 2020 | |
| Drilling, completion, new well equip and tie-in, workovers and recompletions | 47,453 | | 21,954 | | 116,235 | | 230,118 | |
| Production equipment and facilities | 24,859 | | 15,190 | | 36,890 | | 32,817 | |
| Seismic, studies, land and other | 6,864 | | 5,130 | | 9,414 | | 13,043 | |
| Capital expenditures | 79,176 | | 42,274 | | 162,539 | | 275,978 | |
| Acquisitions | 11,859 | | 2,932 | | 12,252 | | 14,269 | |
| Total capital expenditures and acquisitions | 91,035 | | 45,206 | | 174,791 | | 290,247 | |
| | | | | |
| Capital expenditures by country ($M) | Q2 2021 | | Q2 2020 | | YTD 2021 | | YTD 2020 | |
| Canada | 20,210 | | 9,785 | | 74,531 | | 162,362 | |
| United States | 18,637 | | 14,194 | | 23,429 | | 59,543 | |
| France | 8,913 | | 5,603 | | 15,792 | | 16,860 | |
| Netherlands | 7,683 | | 2,638 | | 11,816 | | 5,135 | |
| Germany | 3,607 | | 3,345 | | 6,106 | | 11,134 | |
| Ireland | 172 | | 704 | | 238 | | 684 | |
| Australia | 13,118 | | 4,200 | | 19,957 | | 16,202 | |
| Central and Eastern Europe | 6,836 | | 1,805 | | 10,670 | | 4,058 | |
| Total capital expenditures | 79,176 | | 42,274 | | 162,539 | | 275,978 | |
| | | | | |
| Acquisitions by country ($M) | Q2 2021 | | Q2 2020 | | YTD 2021 | | YTD 2020 | |
| Canada | 308 | | 260 | | 358 | | 5,699 | |
| United States | — | | 749 | | — | | 6,607 | |
| France | — | | — | | — | | — | |
| Netherlands | — | | — | | — | | — | |
| Germany | 11,551 | | 564 | | 11,894 | | 583 | |
| Ireland | — | | — | | — | | — | |
| Australia | — | | — | | — | | — | |
| Central and Eastern Europe | — | | 1,359 | | — | | 1,380 | |
| Total acquisitions | 11,859 | | 2,932 | | 12,252 | | 14,269 | |
| Vermilion Energy Inc. ■ Page 34 ■ 2021 Second Quarter Report |
Supplemental Table 4: Production
| | Q2/21 | | Q1/21 | | Q4/20 | | Q3/20 | | Q2/20 | | Q1/20 | | Q4/19 | | Q3/19 | | Q2/19 | | Q1/19 | | Q4/18 | | Q3/18 | |
| Canada | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 16,868 | | 17,767 | | 19,301 | | 19,847 | | 22,545 | | 22,767 | | 23,259 | 23,610 | 23,973 | 25,067 | 25,640 | 24,602 |
| Condensate (1) (bbls/d) | 5,558 | | 4,556 | | 4,662 | | 5,200 | | 5,047 | | 4,634 | | 4,140 | 4,072 | 4,872 | 4,096 | 3,918 | 3,875 |
| Other NGLs (1) (bbls/d) | 7,767 | | 7,016 | | 7,334 | | 8,350 | | 8,248 | | 6,943 | | 7,005 | 6,632 | 7,352 | 6,968 | 6,816 | 6,126 |
| NGLs (bbls/d) | 13,325 | | 11,572 | | 11,996 | | 13,550 | | 13,295 | | 11,577 | | 11,145 | 10,704 | 12,224 | 11,064 | 10,734 | 10,001 |
| Conventional natural gas (mmcf/d) | 146.55 | | 138.41 | | 135.27 | | 155.15 | | 164.08 | | 151.16 | | 145.14 | | 145.14 | | 151.87 | | 151.37 | | 146.65 | | 136.77 | |
| Total (boe/d) | 54,618 | | 52,407 | | 53,840 | | 59,256 | | 63,187 | | 59,537 | | 58,593 | | 58,504 | | 61,507 | | 61,360 | | 60,814 | | 57,397 | |
| United States | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 1,888 | | 2,322 | | 2,495 | | 3,243 | | 3,971 | | 2,481 | | 3,149 | | 2,717 | | 2,421 | | 1,750 | | 1,582 | | 1,455 | |
| Condensate (1) (bbls/d) | 2 | | — | | 1 | | 6 | | 6 | | 6 | | 12 | | 4 | | 63 | | (8) | | 23 | | 6 | |
| Other NGLs (1) (bbls/d) | 928 | | 1,058 | | 1,294 | | 1,158 | | 1,340 | | 1,079 | | 1,156 | | 1,140 | | 754 | | 929 | | 998 | | 714 | |
| NGLs (bbls/d) | 930 | | 1,058 | | 1,295 | | 1,164 | | 1,346 | | 1,085 | | 1,168 | | 1,144 | | 817 | | 921 | | 1,021 | | 720 | |
| Conventional natural gas (mmcf/d) | 5.51 | | 5.95 | | 6.87 | | 7.94 | | 8.35 | | 6.72 | | 8.20 | | 6.38 | | 7.06 | | 5.89 | | 5.65 | | 4.82 | |
| Total (boe/d) | 3,736 | | 4,373 | | 4,934 | | 5,730 | | 6,708 | | 4,685 | | 5,683 | | 4,925 | | 4,414 | | 3,653 | | 3,545 | | 2,979 | |
| France | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 9,013 | | 9,062 | | 9,255 | | 9,347 | | 7,046 | | 9,957 | | 10,264 | | 10,347 | | 9,800 | | 11,342 | | 11,317 | | 11,407 | |
| Conventional natural gas (mmcf/d) | — | | — | | — | | — | | — | | — | | — | | — | | — | | 0.77 | | 0.82 | | — | |
| Total (boe/d) | 9,013 | | 9,062 | | 9,255 | | 9,347 | | 7,046 | | 9,957 | | 10,264 | | 10,347 | | 9,800 | | 11,470 | | 11,454 | | 11,407 | |
| Netherlands | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 1 | | 6 | | 1 | | — | | 1 | | 3 | | 4 | | 1 | | 9 | | — | | — | | — | |
| Condensate (1) (bbls/d) | 95 | | 92 | | 99 | | 83 | | 86 | | 84 | | 86 | | 81 | | 91 | | 93 | | 112 | | 84 | |
| NGLs (bbls/d) | 95 | | 92 | | 99 | | 83 | | 86 | | 84 | | 86 | | 81 | | 91 | | 93 | | 112 | | 84 | |
| Conventional natural gas (mmcf/d) | 37.59 | | 41.45 | | 42.95 | | 46.09 | | 47.31 | | 48.33 | | 47.99 | | 44.08 | | 52.90 | | 51.51 | | 51.82 | | 44.37 | |
| Total (boe/d) | 6,362 | | 7,006 | | 7,257 | | 7,764 | | 7,972 | | 8,143 | | 8,088 | | 7,429 | | 8,917 | | 8,677 | | 8,749 | | 7,479 | |
| Germany | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 1,093 | | 911 | | 960 | | 964 | | 1,039 | | 909 | | 800 | | 845 | | 1,047 | | 978 | | 913 | | 1,019 | |
| Conventional natural gas (mmcf/d) | 15.60 | | 13.40 | | 11.50 | | 11.25 | | 13.23 | | 14.64 | | 15.44 | | 14.54 | | 14.56 | | 16.71 | | 16.94 | | 14.88 | |
| Total (boe/d) | 3,694 | | 3,144 | | 2,876 | | 2,839 | | 3,244 | | 3,349 | | 3,373 | | 3,269 | | 3,474 | | 3,763 | | 3,736 | | 3,498 | |
| Ireland | | | | | | | | | | | | |
| Conventional natural gas (mmcf/d) | 30.19 | | 34.14 | | 34.76 | | 35.12 | | 38.57 | | 41.38 | | 42.30 | | 43.21 | | 49.21 | | 51.71 | | 52.03 | | 51.38 | |
| Total (boe/d) | 5,031 | | 5,690 | | 5,793 | | 5,853 | | 6,428 | | 6,896 | | 7,049 | | 7,202 | | 8,201 | | 8,619 | | 8,672 | | 8,563 | |
| Australia | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 3,835 | | 4,489 | | 3,781 | | 4,549 | | 5,299 | | 4,041 | | 4,548 | | 5,564 | | 6,689 | | 5,862 | | 4,174 | | 4,704 | |
| Total (boe/d) | 3,835 | | 4,489 | | 3,781 | | 4,549 | | 5,299 | | 4,041 | | 4,548 | | 5,564 | | 6,689 | | 5,862 | | 4,174 | | 4,704 | |
| Central and Eastern Europe | | | | | | | | | | | | |
| Conventional natural gas (mmcf/d) | 0.28 | | 0.63 | | 0.67 | | 0.80 | | 2.89 | | 3.27 | | 1.66 | | — | | — | | — | | 2.86 | | 1.17 | |
| Total (boe/d) | 46 | | 104 | | 111 | | 132 | | 483 | | 546 | | 276 | | — | | — | | — | | 477 | | 195 | |
| Consolidated | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | 32,698 | | 34,556 | | 35,793 | | 37,951 | | 39,899 | | 40,157 | | 42,024 | | 43,084 | | 43,938 | | 45,001 | | 43,625 | | 43,186 | |
| Condensate (1) (bbls/d) | 5,656 | | 4,648 | | 4,762 | | 5,289 | | 5,142 | | 4,724 | | 4,237 | | 4,158 | | 5,026 | | 4,181 | | 4,053 | | 3,965 | |
| Other NGLs (1) (bbls/d) | 8,695 | | 8,074 | | 8,627 | | 9,509 | | 9,588 | | 8,022 | | 8,160 | | 7,772 | | 8,107 | | 7,897 | | 7,815 | | 6,839 | |
| NGLs (bbls/d) | 14,351 | | 12,722 | | 13,389 | | 14,798 | | 14,730 | | 12,746 | | 12,397 | | 11,930 | | 13,133 | | 12,078 | | 11,868 | | 10,804 | |
| Conventional natural gas (mmcf/d) | 235.72 | | 233.98 | | 232.00 | | 256.34 | | 274.42 | | 265.51 | | 260.72 | | 253.36 | | 275.60 | | 277.96 | | 276.77 | | 253.38 | |
| Total (boe/d) | 86,335 | | 86,276 | | 87,848 | | 95,471 | | 100,366 | | 97,154 | | 97,875 | | 97,239 | | 103,003 | | 103,404 | | 101,621 | | 96,222 | |
| Vermilion Energy Inc. ■ Page 35 ■ 2021 Second Quarter Report |
| | | | | | | YTD 2021 | 2020 | 2019 | 2018 | 2017 | 2016 |
| Canada | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 17,315 | | 21,106 | | 23,971 | | 17,400 | | 6,015 | | 6,657 | |
| Condensate (1) (bbls/d) | | | | | | | 5,060 | | 4,886 | | 4,295 | | 3,754 | | 3,036 | | 2,514 | |
| Other NGLs (1) (bbls/d) | | | | | | | 7,393 | | 7,719 | | 6,988 | | 5,914 | | 4,144 | | 2,552 | |
| NGLs (bbls/d) | | | | | | | 12,453 | | 12,605 | | 11,283 | | 9,668 | | 7,180 | | 5,066 | |
| Conventional natural gas (mmcf/d) | | | | | | | 142.50 | | 151.38 | | 148.35 | | 129.37 | | 97.89 | | 84.29 | |
| Total (boe/d) | | | | | | | 53,519 | | 58,942 | | 59,979 | | 48,630 | | 29,510 | | 25,771 | |
| United States | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 2,104 | | 3,046 | | 2,514 | | 1,069 | | 662 | | 393 | |
| Condensate (1) (bbls/d) | | | | | | | 1 | | 5 | | 18 | | 8 | | 4 | | — | |
| Other NGLs (1) (bbls/d) | | | | | | | 993 | | 1,218 | | 996 | | 452 | | 50 | | 29 | |
| NGLs (bbls/d) | | | | | | | 994 | | 1,223 | | 1,014 | | 460 | | 54 | | 29 | |
| Conventional natural gas (mmcf/d) | | | | | | | 5.73 | | 7.47 | | 6.89 | | 2.78 | | 0.39 | | 0.21 | |
| Total (boe/d) | | | | | | | 4,053 | | 5,514 | | 4,675 | | 1,992 | | 781 | | 457 | |
| France | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 9,038 | | 8,903 | | 10,435 | | 11,362 | | 11,084 | | 11,896 | |
| Conventional natural gas (mmcf/d) | | | | | | | — | | — | | 0.19 | | 0.21 | | — | | 0.44 | |
| Total (boe/d) | | | | | | | 9,038 | | 8,903 | | 10,467 | | 11,396 | | 11,085 | | 11,970 | |
| Netherlands | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 3 | | 1 | | 3 | | — | | — | | — | |
| Condensate (1) (bbls/d) | | | | | | | 94 | | 88 | | 88 | | 90 | | 90 | | 88 | |
| NGLs (bbls/d) | | | | | | | 94 | | 88 | | 88 | | 90 | | 90 | | 88 | |
| Conventional natural gas (mmcf/d) | | | | | | | 39.51 | | 46.16 | | 49.10 | | 46.13 | | 40.54 | | 47.82 | |
| Total (boe/d) | | | | | | | 6,682 | | 7,782 | | 8,274 | | 7,779 | | 6,847 | | 8,058 | |
| Germany | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 1,003 | | 968 | | 917 | | 1,004 | | 1,060 | | — | |
| Conventional natural gas (mmcf/d) | | | | | | | 14.51 | | 12.65 | | 15.31 | | 15.66 | | 19.39 | | 14.90 | |
| Total (boe/d) | | | | | | | 3,420 | | 3,076 | | 3,468 | | 3,614 | | 4,291 | | 2,483 | |
| Ireland | | | | | | | | | | | | |
| Conventional natural gas (mmcf/d) | | | | | | | 32.15 | | 37.44 | | 46.57 | | 55.17 | | 58.43 | | 50.89 | |
| Total (boe/d) | | | | | | | 5,359 | | 6,240 | | 7,762 | | 9,195 | | 9,737 | | 8,482 | |
| Australia | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 4,160 | | 4,416 | | 5,662 | | 4,494 | | 5,770 | | 6,304 | |
| Total (boe/d) | | | | | | | 4,160 | | 4,416 | | 5,662 | | 4,494 | | 5,770 | | 6,304 | |
| Central and Eastern Europe | | | | | | | | | | | | |
| Conventional natural gas (mmcf/d) | | | | | | | 0.45 | | 1.90 | | 0.42 | | 1.02 | | — | | — | |
| Total (boe/d) | | | | | | | 75 | | 317 | | 70 | | 169 | | — | | — | |
| Consolidated | | | | | | | | | | | | |
| Light and medium crude oil (bbls/d) | | | | | | | 33,622 | | 38,441 | | 43,502 | | 35,329 | | 24,591 | | 25,250 | |
| Condensate (1) (bbls/d) | | | | | | | 5,155 | | 4,980 | | 4,400 | | 3,853 | | 3,130 | | 2,602 | |
| Other NGLs (1) (bbls/d) | | | | | | | 8,386 | | 8,937 | | 7,984 | | 6,366 | | 4,194 | | 2,582 | |
| NGLs (bbls/d) | | | | | | | 13,541 | | 13,917 | | 12,384 | | 10,219 | | 7,324 | | 5,184 | |
| Conventional natural gas (mmcf/d) | | | | | | | 234.86 | | 256.99 | | 266.82 | | 250.33 | | 216.64 | | 198.55 | |
| Total (boe/d) | | | | | | | 86,306 | | 95,190 | | 100,357 | | 87,270 | | 68,021 | | 63,526 | |
| (1) | Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include segmentation by product type as defined in the instrument. This table provides a reconciliation from "crude oil and condensate", "NGLs" and "natural gas" to the product types. In this report, references to "crude oil" and "light and medium crude oil" mean "light crude oil and medium crude oil" and references to "natural gas" mean "conventional natural gas". Production volumes reported are based on quantities as measured at the first point of sale. |
| Vermilion Energy Inc. ■ Page 36 ■ 2021 Second Quarter Report |
Supplemental Table 5: Operational and Financial Data by Core Region
Production volumes (1)
| | Q2/21 | | Q1/21 | | Q4/20 | | Q3/20 | | Q2/20 | | Q1/20 | | Q4/19 | | Q3/19 | | Q2/19 | | Q1/19 | | Q4/18 | | Q3/18 | |
| North America | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 24,316 | | 24,645 | | 26,459 | | 28,296 | | 31,569 | | 29,888 | | 30,560 | | 30,403 | | 31,329 | | 30,905 | | 31,163 | | 29,938 | |
| NGLs (bbls/d) | 8,695 | | 8,074 | | 8,628 | | 9,508 | | 9,588 | | 8,022 | | 8,161 | | 7,772 | | 8,106 | | 7,897 | | 7,814 | | 6,840 | |
| Natural gas (mmcf/d) | 152.06 | | 144.36 | | 142.13 | | 163.09 | | 172.43 | | 157.88 | | 153.34 | | 151.52 | | 158.93 | | 157.26 | | 152.30 | | 141.59 | |
| Total (boe/d) | 58,354 | | 56,780 | | 58,774 | | 64,986 | | 69,895 | | 64,222 | | 64,276 | | 63,429 | | 65,921 | | 65,013 | | 64,359 | | 60,376 | |
| | | | | | | | | | | | | |
| International | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 14,037 | | 14,560 | | 14,096 | | 14,943 | | 13,471 | | 14,994 | | 15,702 | | 16,838 | | 17,636 | | 18,275 | | 16,516 | | 17,214 | |
| Natural gas (mmcf/d) | 83.66 | | 89.62 | | 89.86 | | 93.25 | | 101.99 | | 107.63 | | 107.38 | | 101.83 | | 116.67 | | 120.70 | | 124.48 | | 111.79 | |
| Total (boe/d) | 27,981 | | 29,495 | | 29,073 | | 30,484 | | 30,472 | | 32,932 | | 33,598 | | 33,811 | | 37,081 | | 38,391 | | 37,262 | | 35,846 | |
| | | | | | | | | | | | | |
| Consolidated | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 38,354 | | 39,204 | | 40,555 | | 43,240 | | 45,041 | | 44,881 | | 46,261 | | 47,242 | | 48,964 | | 49,182 | | 47,678 | | 47,151 | |
| NGLs (bbls/d) | 8,695 | | 8,074 | | 8,627 | | 9,509 | | 9,588 | | 8,022 | | 8,160 | | 7,772 | | 8,107 | | 7,897 | | 7,815 | | 6,839 | |
| Natural gas (mmcf/d) | 235.72 | | 233.98 | | 232.00 | | 256.34 | | 274.42 | | 265.51 | | 260.72 | | 253.36 | | 275.60 | | 277.96 | | 276.77 | | 253.38 | |
| Total (boe/d) | 86,335 | | 86,276 | | 87,848 | | 95,471 | | 100,366 | | 97,154 | | 97,875 | | 97,239 | | 103,003 | | 103,404 | | 101,621 | | 96,222 | |
| (1) | Please refer to Supplemental Table 4 "Production" for disclosure by product type. |
Sales volumes
| | Q2/21 | | Q1/21 | | Q4/20 | | Q3/20 | | Q2/20 | | Q1/20 | | Q4/19 | | Q3/19 | | Q2/19 | | Q1/19 | | Q4/18 | | Q3/18 | |
| North America | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 24,316 | | 24,645 | | 26,459 | | 28,297 | | 31,569 | | 29,888 | | 30,560 | | 30,404 | | 31,327 | | 30,906 | | 31,162 | | 29,938 | |
| NGLs (bbls/d) | 8,695 | | 8,074 | | 8,628 | | 9,508 | | 9,588 | | 8,022 | | 8,161 | | 7,772 | | 8,106 | | 7,897 | | 7,814 | | 6,840 | |
| Natural gas (mmcf/d) | 152.06 | | 144.36 | | 142.13 | | 163.09 | | 172.43 | | 157.88 | | 153.34 | | 151.52 | | 158.93 | | 157.26 | | 152.30 | | 141.59 | |
| Total (boe/d) | 58,354 | | 56,780 | | 58,774 | | 64,986 | | 69,895 | | 64,222 | | 64,276 | | 63,429 | | 65,921 | | 65,013 | | 64,359 | | 60,376 | |
| | | | | | | | | | | | | |
| International | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 13,859 | | 11,421 | | 15,359 | | 15,689 | | 12,202 | | 17,090 | | 13,864 | | 18,575 | | 16,009 | | 20,163 | | 16,458 | | 16,559 | |
| Natural gas (mmcf/d) | 83.66 | | 89.62 | | 89.86 | | 93.25 | | 101.99 | | 107.63 | | 107.38 | | 101.83 | | 116.67 | | 120.70 | | 124.48 | | 111.02 | |
| Total (boe/d) | 27,802 | | 26,357 | | 30,336 | | 31,229 | | 29,201 | | 35,028 | | 31,760 | | 35,547 | | 35,454 | | 40,279 | | 37,204 | | 35,062 | |
| | | | | | | | | | | | | |
| Consolidated | | | | | | | | | | | | |
| Crude oil and condensate (bbls/d) | 38,174 | | 36,066 | | 41,818 | | 43,985 | | 43,771 | | 46,977 | | 44,423 | | 48,979 | | 47,337 | | 51,068 | | 47,620 | | 46,368 | |
| NGLs (bbls/d) | 8,695 | | 8,074 | | 8,627 | | 9,509 | | 9,588 | | 8,022 | | 8,160 | | 7,772 | | 8,107 | | 7,897 | | 7,815 | | 6,839 | |
| Natural gas (mmcf/d) | 235.72 | | 233.98 | | 232.00 | | 256.34 | | 274.42 | | 265.51 | | 260.72 | | 253.36 | | 275.60 | | 277.96 | | 276.77 | | 253.38 | |
| Total (boe/d) | 86,156 | | 83,138 | | 89,111 | | 96,217 | | 99,096 | | 99,250 | | 96,037 | | 98,976 | | 101,377 | | 105,291 | | 101,563 | | 95,437 | |
| Vermilion Energy Inc. ■ Page 37 ■ 2021 Second Quarter Report |
Financial results
| | Q2/21 | | Q1/21 | | Q4/20 | | Q3/20 | | Q2/20 | | Q1/20 | | Q4/19 | | Q3/19 | | Q2/19 | | Q1/19 | | Q4/18 | | Q3/18 | |
| North America | | | | | | | | | | | | |
| Crude oil and condensate sales ($/bbl) | 75.43 | | 66.31 | | 51.06 | | 49.79 | | 28.94 | | 50.25 | | 66.31 | | 66.67 | | 72.40 | | 65.95 | | 54.90 | | 80.22 | |
| NGL sales ($/bbl) | 25.43 | | 29.39 | | 19.20 | | 15.04 | | 8.94 | | 8.92 | | 14.63 | | 6.14 | | 11.25 | | 22.49 | | 25.70 | | 27.97 | |
| Natural gas sales ($/mcf) | 2.72 | | 3.98 | | 2.77 | | 2.02 | | 1.60 | | 1.92 | | 2.29 | | 1.18 | | 1.15 | | 2.52 | | 1.79 | | 1.46 | |
| Sales ($/boe) | 42.30 | | 43.08 | | 32.51 | | 28.94 | | 18.24 | | 29.22 | | 38.86 | | 35.52 | | 38.56 | | 40.17 | | 33.94 | | 46.37 | |
| Royalties ($/boe) | (5.98) | | (5.49) | | (3.64) | | (3.58) | | (1.67) | | (3.54) | | (4.98) | | (4.93) | | (4.22) | | (5.00) | | (5.01) | | (6.71) | |
| Transportation ($/boe) | (1.90) | | (2.05) | | (1.92) | | (1.74) | | (1.72) | | (1.91) | | (1.76) | | (1.78) | | (1.63) | | (1.83) | | (1.88) | | (1.63) | |
| Operating ($/boe) | (10.89) | | (11.21) | | (10.94) | | (7.82) | | (9.60) | | (11.93) | | (11.15) | | (10.67) | | (10.66) | | (11.46) | | (10.96) | | (10.48) | |
| General and administration ($/boe) | (0.91) | | (1.34) | | (1.94) | | (0.78) | | (1.52) | | (0.84) | | (0.97) | | (0.60) | | (1.04) | | (0.83) | | (0.28) | | (0.36) | |
| Corporate income taxes ($/boe) | (0.04) | | (0.04) | | 0.04 | | (0.02) | | (0.02) | | (0.04) | | (0.11) | | 0.09 | | (0.02) | | (0.03) | | 0.10 | | (0.16) | |
| PRRT ($/boe) | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| Fund flows netback ($/boe) | 22.58 | | 22.94 | | 14.12 | | 14.99 | | 3.72 | | 10.96 | | 19.89 | | 17.63 | | 20.99 | | 21.03 | | 15.91 | | 27.04 | |
| | | | | | | | | | | | | |
| Fund flows from operations | 119,916 | | 117,227 | | 76,375 | | 89,635 | | 23,639 | | 64,048 | | 117,623 | | 102,867 | | 125,893 | | 123,071 | | 94,200 | | 150,202 | |
| Capital expenditures | (38,847) | | (59,113) | | (33,781) | | (9,575) | | (23,979) | | (197,926) | | (69,775) | | (91,027) | | (42,047) | | (148,091) | | (93,092) | | (101,223) | |
| Free cash flow | 81,069 | | 58,114 | | 42,594 | | 80,060 | | (340) | | (133,878) | | 47,848 | | 11,840 | | 83,846 | | (25,020) | | 1,108 | | 48,979 | |
| | | | | | | | | | | | | |
| International | | | | | | | | | | | | |
| Crude oil and condensate sales ($/bbl) | 85.41 | | 81.40 | | 62.65 | | 58.19 | | 50.27 | | 73.35 | | 82.14 | | 84.55 | | 93.28 | | 84.95 | | 87.56 | | 95.32 | |
| Natural gas sales ($/mcf) | 9.83 | | 7.98 | | 6.27 | | 2.91 | | 2.28 | | 4.44 | | 5.49 | | 4.29 | | 5.73 | | 8.46 | | 10.78 | | 10.34 | |
| Sales ($/boe) | 72.16 | | 62.39 | | 50.30 | | 37.94 | | 28.98 | | 49.42 | | 54.42 | | 56.46 | | 60.98 | | 67.87 | | 74.80 | | 77.76 | |
| Royalties ($/boe) | (3.83) | | (3.53) | | (3.02) | | (3.32) | | (2.16) | | (3.27) | | (3.85) | | (3.89) | | (3.97) | | (3.89) | | (4.16) | | (5.13) | |
| Transportation ($/boe) | (4.64) | | (2.76) | | (2.40) | | (2.28) | | (2.04) | | (1.94) | | (1.77) | | (2.76) | | (3.40) | | (1.66) | | (1.70) | | (1.45) | |
| Operating ($/boe) | (16.56) | | (16.42) | | (16.99) | | (15.18) | | (14.35) | | (16.13) | | (15.28) | | (13.13) | | (11.76) | | (15.28) | | (13.89) | | (12.26) | |
| General and administration ($/boe) | (2.61) | | (2.06) | | (2.92) | | (2.53) | | (2.72) | | (2.63) | | (3.70) | | (3.10) | | (2.93) | | (2.27) | | (3.27) | | (3.49) | |
| Corporate income taxes ($/boe) | (0.19) | | 0.66 | | 2.25 | | 0.04 | | (0.02) | | (0.11) | | 2.22 | | (1.55) | | (3.63) | | (4.30) | | (2.49) | | (2.65) | |
| PRRT ($/boe) | (0.58) | | (0.60) | | (1.45) | | (1.27) | | (1.21) | | (2.90) | | (0.50) | | (1.78) | | (2.56) | | (2.87) | | 0.71 | | 0.08 | |
| Fund flows netback ($/boe) | 43.74 | | 37.69 | | 25.77 | | 13.40 | | 6.47 | | 22.44 | | 31.54 | | 30.26 | | 32.73 | | 37.60 | | 49.99 | | 52.88 | |
| | | | | | | | | | | | | |
| Fund flows from operations | 110,654 | | 89,403 | | 71,934 | | 38,498 | | 17,193 | | 71,526 | | 92,160 | | 98,955 | | 105,600 | | 136,298 | | 171,119 | | 170,563 | |
| Capital expenditures | (40,329) | | (24,250) | | (26,113) | | (21,755) | | (18,295) | | (35,778) | | (30,850) | | (36,852) | | (50,560) | | (53,962) | | (70,488) | | (44,962) | |
| Free cash flow | 70,325 | | 65,153 | | 45,821 | | 16,743 | | (1,102) | | 35,748 | | 61,310 | | 62,103 | | 55,040 | | 82,336 | | 100,631 | | 125,601 | |
| | | | | | | | | | | | | |
| | Q2/21 | | Q1/21 | | Q4/20 | | Q3/20 | | Q2/20 | | Q1/20 | | Q4/19 | | Q3/19 | | Q2/19 | | Q1/19 | | Q4/18 | | Q3/18 | |
| Consolidated | | | | | | | | | | | | |
| Crude oil and condensate sales ($/bbl) | 79.06 | | 71.09 | | 55.31 | | 52.79 | | 34.89 | | 58.66 | | 71.25 | | 73.45 | | 79.46 | | 73.45 | | 66.19 | | 85.84 | |
| NGL sales ($/bbl) | 25.43 | | 29.39 | | 19.20 | | 15.04 | | 8.94 | | 8.92 | | 14.63 | | 6.14 | | 11.25 | | 22.49 | | 25.69 | | 27.97 | |
| Natural gas sales ($/mcf) | 5.24 | | 5.51 | | 4.13 | | 2.34 | | 1.85 | | 2.94 | | 3.61 | | 2.43 | | 3.09 | | 5.10 | | 5.83 | | 5.35 | |
| Sales ($/boe) | 51.93 | | 49.20 | | 38.57 | | 31.86 | | 21.40 | | 36.35 | | 44.01 | | 43.04 | | 46.40 | | 50.77 | | 48.90 | | 57.90 | |
| Royalties ($/boe) | (5.29) | | (4.87) | | (3.43) | | (3.50) | | (1.81) | | (3.45) | | (4.60) | | (4.56) | | (4.13) | | (4.58) | | (4.70) | | (6.13) | |
| Transportation ($/boe) | (2.78) | | (2.27) | | (2.08) | | (1.92) | | (1.81) | | (1.92) | | (1.76) | | (2.13) | | (2.25) | | (1.76) | | (1.81) | | (1.56) | |
| Operating ($/boe) | (12.72) | | (12.86) | | (13.00) | | (10.21) | | (11.00) | | (13.41) | | (12.52) | | (11.55) | | (11.04) | | (12.92) | | (12.04) | | (11.13) | |
| General and administration ($/boe) | (1.46) | | (1.57) | | (2.27) | | (1.35) | | (1.88) | | (1.47) | | (1.88) | | (1.50) | | (1.70) | | (1.38) | | (1.37) | | (1.51) | |
| Corporate income taxes ($/boe) | (0.09) | | 0.18 | | 0.80 | | — | | (0.02) | | (0.06) | | 0.66 | | (0.50) | | (1.28) | | (1.66) | | (0.85) | | (1.07) | |
| PRRT ($/boe) | (0.19) | | (0.19) | | (0.49) | | (0.41) | | (0.36) | | (1.02) | | (0.16) | | (0.64) | | (0.90) | | (1.10) | | 0.26 | | 0.03 | |
| Interest ($/boe) | (2.41) | | (2.57) | | (2.42) | | (1.97) | | (1.98) | | (2.21) | | (2.17) | | (2.16) | | (2.34) | | (2.21) | | (2.23) | | (2.25) | |
| Realized derivatives ($/boe) | (5.05) | | (3.43) | | 0.10 | | 0.47 | | 6.07 | | 5.47 | | 2.57 | | 4.06 | | 1.54 | | 1.09 | | (3.03) | | (4.26) | |
| Realized foreign exchange ($/boe) | (0.25) | | (0.69) | | 0.16 | | (0.31) | | 0.44 | | 0.94 | | 0.23 | | (0.37) | | (0.17) | | (0.22) | | 0.63 | | (0.35) | |
| Realized other ($/boe) | 0.35 | | 0.73 | | 0.56 | | 0.29 | | 0.03 | | (0.37) | | 0.03 | | 0.04 | | 0.02 | | 0.73 | | 0.03 | | 0.02 | |
| Fund flows netback ($/boe) | 22.06 | | 21.66 | | 16.49 | | 12.97 | | 9.08 | | 18.85 | | 24.40 | | 23.74 | | 24.14 | | 26.76 | | 23.80 | | 29.69 | |
| | | | | | | | | | | | | |
| Fund flows from operations | 172,942 | | 162,051 | | 135,212 | | 114,776 | | 81,852 | | 170,225 | | 215,592 | | 216,153 | | 222,738 | | 253,572 | | 222,342 | | 260,705 | |
| Capital expenditures | (79,176) | | (83,363) | | (59,894) | | (31,330) | | (42,274) | | (233,704) | | (100,625) | | (127,879) | | (92,607) | | (202,053) | | (163,580) | | (146,185) | |
| Free cash flow | 93,766 | | 78,688 | | 75,318 | | 83,446 | | 39,578 | | (63,479) | | 114,967 | | 88,274 | | 130,131 | | 51,519 | | 58,762 | | 114,520 | |
| Vermilion Energy Inc. ■ Page 38 ■ 2021 Second Quarter Report |
Non-GAAP Financial Measures
This MD&A includes references to certain financial measures which do not have standardized meanings and may not be comparable to similar measures presented by other issuers. These financial measures include fund flows from operations, a measure of profit or loss in accordance with IFRS 8 “Operating Segments” (please see Segmented Information in the Notes to the Condensed Consolidated Interim Financial Statements) and net debt, a measure of capital in accordance with IAS 1 “Presentation of Financial Statements” (please see Capital Disclosures in the Notes to the Condensed Consolidated Interim Financial Statements).
In addition, this MD&A includes financial measures which are not specified, defined, or determined under IFRS and are therefore considered non-GAAP financial measures and may not be comparable to similar measures presented by other issuers. These non-GAAP financial measures include:
Acquisitions: The sum of acquisitions from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed plus or net of acquired working capital deficit or surplus. We believe that including these components provides a useful measure of the economic investment associated with our acquisition activity.
Capital expenditures: The sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. We consider capital expenditures to be a useful measure of our investment in our existing asset base. Capital expenditures are also referred to as E&D capital.
Cash dividends per share: Represents cash dividends declared per share and is a useful measure of the dividends a common shareholder was entitled to during the period.
Covenants: The financial covenants on our revolving credit facility contain non-GAAP measures. The definitions for these financial covenants are included in Financial Position Review.
Diluted shares outstanding: 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.
Free cash flow: Represents fund flows from operations in excess of capital expenditures. We use free cash flow 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. We also assess free cash flow as a percentage of fund flows from operations, which is a measure of the percentage of fund flows from operations that is retained for incremental investing and financing activities.
Fund flows from operations per basic and diluted share: Management assesses fund flows from operations on a per share basis as we believe this provides a measure of our operating performance after taking into account the issuance and potential future issuance of Vermilion common shares. Fund flows from operations per basic share is calculated by dividing fund flows from operations by the basic weighted average shares outstanding as defined under IFRS. Fund flows from operations per diluted share is calculated by dividing fund flows from operations by the sum of basic weighted average shares outstanding and incremental shares issuable under the equity based compensation plans as determined using the treasury stock method.
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.
Operating netback: Sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses presented on a per unit basis. Management assesses operating netback as a measure of the profitability and efficiency of our field operations. In contrast, fund flows from operations netback also includes general and administration expense, corporate income taxes, and interest. Fund flows from operations netback is used by management to assess the profitability of our business units and Vermilion as a whole.
Payout: We define payout as net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled. Management uses payout and payout as a percentage of fund flows from operations (also referred to as the payout or sustainability ratio) to assess the amount of cash distributed back to shareholders and re-invested in the business for maintaining production and organic growth.
Return on capital employed (ROCE): ROCE is a measure that we use to analyze our profitability and the efficiency of our capital allocation process. ROCE is calculated by dividing net earnings before interest and taxes ("EBIT") by average capital employed over the preceding twelve months. Capital employed is calculated as total assets less current liabilities while average capital employed is calculated using the balance sheets at the beginning and end of the twelve-month period.
| Vermilion Energy Inc. ■ Page 39 ■ 2021 Second Quarter Report |
The following tables reconcile net dividends, payout, and diluted shares outstanding from their most directly comparable GAAP measures as presented in our financial statements:
| ($M) | Q2 2021 | | Q2 2020 | | YTD 2021 | | YTD 2020 | |
| Dividends declared | — | | — | | — | | 90,067 | |
| Shares issued for the Dividend Reinvestment Plan | — | | (632) | | — | | (8,277) | |
| Net dividends | — | | — | | — | | 81,790 | |
| Drilling and development | 77,703 | | 42,383 | | 157,215 | | 269,816 | |
| Exploration and evaluation | 1,473 | | (109) | | 5,324 | | 6,162 | |
| Asset retirement obligations settled | 3,321 | | 970 | | 10,344 | | 4,702 | |
| Payout | 82,497 | | 42,612 | | 172,883 | | 362,470 | |
| % of fund flows from operations | 48 | % | 52 | % | 52 | % | 144 | % |
| ('000s of shares) | Q2 2021 | | Q2 2020 | |
| Shares outstanding | 161,893 | | 158,307 | |
| Potential shares issuable pursuant to the VIP | 7,010 | | 5,783 | |
| Diluted shares outstanding | 168,903 | | 164,090 | |
The following table reconciles the calculation of return on capital employed:
| | Twelve Months Ended |
| ($M) | Jun 30, 2021 | | Jun 30, 2020 | |
| Net earnings (loss) | 823,605 | | (1,398,546) | |
| Taxes | 172,462 | | (273,324) | |
| Interest expense | 75,305 | | 76,699 | |
| EBIT | 1,071,372 | | (1,595,171) | |
| Average capital employed | 4,436,484 | | 4,826,230 | |
| Return on capital employed | 24 | % | (33) | % |
| Vermilion Energy Inc. ■ Page 40 ■ 2021 Second Quarter Report |
Consolidated Interim Financial Statements
Consolidated Balance Sheet
thousands of Canadian dollars, unaudited
| | Note | June 30, 2021 | | December 31, 2020 | |
| Assets | | | |
| Current | | | |
| Cash and cash equivalents | | — | | 6,904 | |
| Accounts receivable | | 205,937 | | 196,077 | |
| Crude oil inventory | | 28,549 | | 13,402 | |
| Derivative instruments | | 36,834 | | 16,924 | |
| Prepaid expenses | | 21,454 | | 27,686 | |
| Total current assets | | 292,774 | | 260,993 | |
| | | | |
| Derivative instruments | | — | | 2,451 | |
| Deferred taxes | | 298,405 | | 484,497 | |
| Exploration and evaluation assets | | 237,576 | | 254,094 | |
| Capital assets | 3 | 4,578,718 | | 3,107,104 | |
| Total assets | | 5,407,473 | | 4,109,139 | |
| | | | |
| Liabilities | | | |
| Current | | | |
| Accounts payable and accrued liabilities | | 346,501 | | 297,670 | |
| Derivative instruments | | 168,187 | | 130,919 | |
| Income taxes payable | | 13,492 | | 4,539 | |
| Total current liabilities | | 528,180 | | 433,128 | |
| | | | |
| Derivative instruments | | 62,384 | | 8,228 | |
| Long-term debt | 6 | 1,769,866 | | 1,933,848 | |
| Lease obligations | | 71,636 | | 76,524 | |
| Asset retirement obligations | 4 | 809,240 | | 467,737 | |
| Deferred taxes | | 304,367 | | 264,272 | |
| Total liabilities | | 3,545,673 | | 3,183,737 | |
| | | | |
| Shareholders' Equity | | | |
| Shareholders' capital | 7 | 4,235,625 | | 4,181,160 | |
| Contributed surplus | | 40,781 | | 66,250 | |
| Accumulated other comprehensive income | | 36,070 | | 77,986 | |
| Deficit | | (2,450,676) | | (3,399,994) | |
| Total shareholders' equity | | 1,861,800 | | 925,402 | |
| Total liabilities and shareholders' equity | | 5,407,473 | | 4,109,139 | |
Approved by the Board
| (Signed "Robert Michaleski”) | | (Signed “Lorenzo Donadeo”) |
| | | |
| Robert Michaleski, Director | | Lorenzo Donadeo, Director |
| Vermilion Energy Inc. ■ Page 41 ■ 2021 Second Quarter Report |
Consolidated Statements of Net Earnings (Loss) and Comprehensive Income (Loss)
thousands of Canadian dollars, except share and per share amounts, unaudited
| | | Three Months Ended | Six Months Ended |
| | Note | Jun 30, 2021 | | Jun 30, 2020 | | Jun 30, 2021 | | Jun 30, 2020 | |
| Revenue | | | | | |
| Petroleum and natural gas sales | | 407,179 | | 193,013 | | 775,316 | | 521,327 | |
| Royalties | | (41,456) | | (16,352) | | (77,902) | | (47,477) | |
| Sales of purchased commodities | | 29,851 | | 16,118 | | 73,615 | | 72,226 | |
| Petroleum and natural gas revenue | | 395,574 | | 192,779 | | 771,029 | | 546,076 | |
| | | | | | |
| Expenses | | | | | |
| Purchased commodities | | 29,851 | | 16,118 | | 73,615 | | 72,226 | |
| Operating | | 99,737 | | 99,175 | | 195,978 | | 220,313 | |
| Transportation | | 21,834 | | 16,365 | | 38,855 | | 33,695 | |
| Equity based compensation | | 10,536 | | 9,164 | | 27,076 | | 22,161 | |
| Loss (gain) on derivative instruments | | 118,982 | | (50,933) | | 139,173 | | (109,668) | |
| Interest expense | | 18,862 | | 17,887 | | 38,097 | | 37,869 | |
| General and administration | | 11,432 | | 16,912 | | 23,162 | | 30,229 | |
| Foreign exchange loss | | 20,256 | | 3,438 | | 51,347 | | 4,897 | |
| Other (income) expense | | (2,576) | | (16) | | (7,849) | | 3,502 | |
| Accretion | 4 | 10,863 | | 7,288 | | 21,370 | | 17,026 | |
| Depletion and depreciation | 3 | 149,651 | | 106,707 | | 255,664 | | 264,514 | |
| Impairment (reversal) expense | 3 | (593,606) | | 69,713 | | (1,256,472) | | 1,634,567 | |
| Gain on business combination | 3 | (17,198) | | — | | (17,198) | | — | |
| | | (121,376) | | 311,818 | | (417,182) | | 2,231,331 | |
| Earnings (loss) before income taxes | | 516,950 | | (119,039) | | 1,188,211 | | (1,685,255) | |
| | | | | | |
| Income tax expense (recovery) | | | | | |
| Deferred | 3 | 63,526 | | (51,126) | | 234,754 | | (308,668) | |
| Current | | 2,150 | | 3,377 | | 2,219 | | 13,207 | |
| | | 65,676 | | (47,749) | | 236,973 | | (295,461) | |
| | | | | | |
| Net earnings (loss) | | 451,274 | | (71,290) | | 951,238 | | (1,389,794) | |
| | | | | | |
| Other comprehensive income (loss) | | | | | |
| Currency translation adjustments | | (12,244) | | (22,989) | | (45,180) | | 66,422 | |
| Unrealized gain (loss) on hedges | | 1,631 | | (37,178) | | 3,264 | | (39,621) | |
| Comprehensive income (loss) | | 440,661 | | (131,457) | | 909,322 | | (1,362,993) | |
| | | | | | |
| Net earnings (loss) per share | | | | | |
| Basic | | 2.79 | | (0.45) | | 5.94 | | (8.83) | |
| Diluted | | 2.73 | | (0.45) | | 5.85 | | (8.83) | |
| | | | | | |
| Weighted average shares outstanding ('000s) | | | | | |
| Basic | | 161,546 | | 158,189 | | 160,226 | | 157,375 | |
| Diluted | | 165,034 | | 158,189 | | 162,553 | | 157,375 | |
| Vermilion Energy Inc. ■ Page 42 ■ 2021 Second Quarter Report |
Consolidated Statements of Cash Flows
thousands of Canadian dollars, unaudited
| | | Three Months Ended | Six Months Ended |
| | Note | Jun 30, 2021 | | Jun 30, 2020 | | Jun 30, 2021 | | Jun 30, 2020 | |
| Operating | | | | | |
| Net earnings (loss) | | 451,274 | | (71,290) | | 951,238 | | (1,389,794) | |
| Adjustments: | | | | | |
| Accretion | 4 | 10,863 | | 7,288 | | 21,370 | | 17,026 | |
| Depletion and depreciation | 3 | 149,651 | | 106,707 | | 255,664 | | 264,514 | |
| Impairment (reversal) expense | 3 | (593,606) | | 69,713 | | (1,256,472) | | 1,634,567 | |
| Gain on business combinations | 3 | (17,198) | | — | | (17,198) | | — | |
| Unrealized loss (gain) on derivative instruments | | 79,408 | | 3,771 | | 73,966 | | (5,545) | |
| Equity based compensation | | 10,536 | | 9,164 | | 27,076 | | 22,161 | |
| Unrealized foreign exchange loss | | 18,298 | | 7,410 | | 44,208 | | 17,392 | |
| Unrealized other expense | | 190 | | 215 | | 387 | | 424 | |
| Deferred taxes | | 63,526 | | (51,126) | | 234,754 | | (308,668) | |
| Asset retirement obligations settled | 4 | (3,321) | | (970) | | (10,344) | | (4,702) | |
| Changes in non-cash operating working capital | | 83,785 | | (88,050) | | 47,904 | | 23,896 | |
| Cash flows from (used in) operating activities | | 253,406 | | (7,168) | | 372,553 | | 271,271 | |
| | | | | | |
| Investing | | | | | |
| Drilling and development | 3 | (77,703) | | (42,383) | | (157,215) | | (269,816) | |
| Exploration and evaluation | | (1,473) | | 109 | | (5,324) | | (6,162) | |
| Acquisitions | 3 | (12,196) | | (2,932) | | (12,589) | | (14,269) | |
| Changes in non-cash investing working capital | | (5,866) | | (76,782) | | 3,231 | | (18,744) | |
| Cash flows used in investing activities | | (97,238) | | (121,988) | | (171,897) | | (308,991) | |
| | | | | | |
| Financing | | | | | |
| (Repayments) borrowings on the revolving credit facility | 6 | (154,037) | | 141,842�� | | (195,491) | | 144,955 | |
| Payments on lease obligations | | (5,815) | | (6,224) | | (11,567) | | (13,450) | |
| Cash dividends | | — | | (17,425) | | — | | (117,737) | |
| Cash flows (used in) from financing activities | | (159,852) | | 118,193 | | (207,058) | | 13,768 | |
| Foreign exchange gain (loss) on cash held in foreign currencies | | 81 | | (886) | | (502) | | (290) | |
| | | | | | |
| Net change in cash and cash equivalents | | (3,603) | | (11,849) | | (6,904) | | (24,242) | |
| Cash and cash equivalents, beginning of period | | 3,603 | | 16,635 | | 6,904 | | 29,028 | |
| Cash and cash equivalents, end of period | | — | | 4,786 | | — | | 4,786 | |
| | | | | | |
| Supplementary information for cash flows from operating activities | | | | | |
| Interest paid | | 12,989 | | 18,475 | | 36,926 | | 38,155 | |
| Income taxes refunded | | (4,397) | | (15,075) | | (6,734) | | (5,128) | |
| Vermilion Energy Inc. ■ Page 43 ■ 2021 Second Quarter Report |
Consolidated Statements of Changes in Shareholders' Equity
thousands of Canadian dollars, unaudited
| | | Six Months Ended |
| | Note | Jun 30, 2021 | | Jun 30, 2020 | |
| Shareholders' capital | 7 | | |
| Balance, beginning of period | | 4,181,160 | | 4,119,031 | |
| Shares issued for the Dividend Reinvestment Plan | | — | | 8,277 | |
| Vesting of equity based awards | | 44,852 | | 43,474 | |
| Equity based compensation | | 7,693 | | 2,118 | |
| Share-settled dividends on vested equity based awards | | 1,920 | | 1,360 | |
| Balance, end of period | | 4,235,625 | | 4,174,260 | |
| Contributed surplus | 7 | | |
| Balance, beginning of period | | 66,250 | | 75,735 | |
| Equity based compensation | | 19,383 | | 20,043 | |
| Vesting of equity based awards | | (44,852) | | (43,474) | |
| Balance, end of period | | 40,781 | | 52,304 | |
| Accumulated other comprehensive income | | | |
| Balance, beginning of period | | 77,986 | | 49,578 | |
| Currency translation adjustments | | (45,180) | | 53,984 | |
| Hedge accounting reserve | | 3,264 | | (27,183) | |
| Balance, end of period | | 36,070 | | 76,379 | |
| Deficit | | | |
| Balance, beginning of period | | (3,399,994) | | (1,791,039) | |
| Net earnings (loss) | | 951,238 | | (1,389,794) | |
| Dividends declared | | — | | (90,067) | |
| Share-settled dividends on vested equity based awards | | (1,920) | | (1,360) | |
| Balance, end of period | | (2,450,676) | | (3,272,260) | |
| | | | |
| Total shareholders' equity | | 1,861,800 | | 1,030,683 | |
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 unvested equity based awards that will be settled in shares. Once vested, the value of the awards are transferred to shareholders’ capital.
Accumulated other comprehensive income
Represents currency translation adjustments and hedge accounting reserve.
Currency translation adjustments result from translating the balance sheets of subsidiaries with a foreign functional currency to Canadian dollars at period-end rates. These amounts may be reclassified to net earnings if there is a disposal or partial disposal of a subsidiary.
The hedge accounting reserve represents the effective portion of the change in fair value related to cash flow and net investment hedges recognized in other comprehensive income, net of tax and reclassified to the consolidated statement of net earnings in the same period in which the transaction associated with the hedged item occurs. For the six months ended June 30, 2021, accumulated losses of $2.5 million and $0.8 million were recognized in the consolidated statement of net earnings on the cash flow hedges and net investment hedges, respectively, and will be recognized in net earnings through 2025 when the senior unsecured notes mature.
Deficit
Represents the cumulative net earnings less distributed earnings of Vermilion Energy Inc.
| Vermilion Energy Inc. ■ Page 44 ■ 2021 Second Quarter Report |
Notes to the Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2021 and 2020
tabular amounts in thousands of Canadian dollars, except share and per share amounts, unaudited
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 International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. These condensed consolidated interim financial statements have been prepared using the same accounting policies and methods of computation as Vermilion’s consolidated financial statements for the year ended December 31, 2020.
These condensed consolidated interim financial statements should be read in conjunction with Vermilion’s consolidated financial statements for the year ended December 31, 2020, which are contained within Vermilion’s Annual Report for the year ended December 31, 2020 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
August 13, 2021.
| Vermilion Energy Inc. ■ Page 45 ■ 2021 Second Quarter Report |
| | Three Months Ended June 30, 2021 |
| | Canada | | USA | | France | | Netherlands | | Germany | | Ireland | | Australia | | Corporate | | Total | |
| Drilling and development | 20,210 | | 18,637 | | 8,896 | | 7,739 | | 3,121 | | 172 | | 13,118 | | 5,810 | | 77,703 | |
| Exploration and evaluation | — | | — | | 17 | | (56) | | 486 | | — | | — | | 1,026 | | 1,473 | |
| | | | | | | | | | |
| Crude oil and condensate sales | 153,331 | | 13,582 | | 68,108 | | 592 | | 7,741 | | 23 | | 31,256 | | — | | 274,633 | |
| NGL sales | 17,380 | | 2,740 | | — | | — | | — | | — | | — | | — | | 20,120 | |
| Natural gas sales | 36,137 | | 1,439 | | — | | 31,963 | | 12,533 | | 30,165 | | — | | 189 | | 112,426 | |
| Sales of purchased commodities | — | | — | | — | | — | | — | | — | | — | | 29,851 | | 29,851 | |
| Royalties | (27,001) | | (4,754) | | (9,167) | | (128) | | (367) | | — | | — | | (39) | | (41,456) | |
| Revenue from external customers | 179,847 | | 13,007 | | 58,941 | | 32,427 | | 19,907 | | 30,188 | | 31,256 | | 30,001 | | 395,574 | |
| Purchased commodities | — | | — | | — | | — | | — | | — | | — | | (29,851) | | (29,851) | |
| Transportation | (9,868) | | (216) | | (9,118) | | — | | (1,554) | | (1,078) | | — | | — | | (21,834) | |
| Operating | (54,441) | | (3,389) | | (12,591) | | (7,895) | | (6,807) | | (4,157) | | (10,408) | | (49) | | (99,737) | |
| General and administration | (5,953) | | (725) | | (3,216) | | (110) | | (1,459) | | (25) | | (754) | | 810 | | (11,432) | |
| PRRT | — | | — | | — | | — | | — | | — | | (1,459) | | — | | (1,459) | |
| Corporate income taxes | — | | — | | (1) | | (2,362) | | — | | — | | 1,871 | | (199) | | (691) | |
| Interest expense | — | | — | | — | | — | | — | | — | | — | | (18,862) | | (18,862) | |
| Realized loss on derivative instruments | — | | — | | — | | — | | — | | — | | — | | (39,574) | | (39,574) | |
| Realized foreign exchange loss | — | | — | | — | | — | | — | | — | | — | | (1,958) | | (1,958) | |
| Realized other income | — | | — | | — | | — | | — | | — | | — | | 2,766 | | 2,766 | |
| Fund flows from operations | 109,585 | | 8,677 | | 34,015 | | 22,060 | | 10,087 | | 24,928 | | 20,506 | | (56,916) | | 172,942 | |
| | | | | | | | | | |
| | Three Months Ended June 30, 2020 |
| | Canada | | USA | | France | | Netherlands | | Germany | | Ireland | | Australia | | Corporate | | Total | |
| Drilling and development | 9,785 | | 14,194 | | 5,563 | | 6,417 | | 1,402 | | 704 | | 4,200 | | 118 | | 42,383 | |
| Exploration and evaluation | — | | — | | 40 | | (3,779) | | 1,943 | | — | | — | | 1,687 | | (109) | |
| | | | | | | | | | |
| Crude oil and condensate sales | 68,587 | | 14,550 | | 23,329 | | 113 | | 3,659 | | (16) | | 28,772 | | (48) | | 138,953 | |
| NGL sales | 7,222 | | 582 | | — | | — | | — | | — | | — | | — | | 7,804 | |
| Natural gas sales | 24,326 | | 742 | | — | | 10,541 | | 2,894 | | 7,284 | | — | | 469 | | 46,256 | |
| Sales of purchased commodities | — | | — | | — | | — | | — | | — | | — | | 16,118 | | 16,118 | |
| Royalties | (6,777) | | (3,836) | | (4,711) | | (55) | | (795) | | — | | — | | (178) | | (16,352) | |
| Revenue from external customers | 93,358 | | 12,038 | | 18,618 | | 10,599 | | 5,758 | | 7,268 | | 28,772 | | 16,368 | | 192,779 | |
| Purchased commodities | — | | — | | — | | — | | — | | — | | — | | (16,118) | | (16,118) | |
| Transportation | (10,465) | | (469) | | (2,747) | | — | | (1,505) | | (1,179) | | — | | — | | (16,365) | |
| Operating | (57,281) | | (3,765) | | (10,016) | | (7,526) | | (5,912) | | (3,852) | | (10,659) | | (164) | | (99,175) | |
| General and administration | (8,705) | | (1,796) | | (3,499) | | (212) | | (1,314) | | 106 | | (888) | | (604) | | (16,912) | |
| PRRT | — | | — | | — | | — | | — | | — | | (3,219) | | — | | (3,219) | |
| Corporate income taxes | — | | — | | — | | 257 | | — | | — | | (313) | | (102) | | (158) | |
| Interest expense | — | | — | | — | | — | | — | | — | | — | | (17,887) | | (17,887) | |
| Realized gain on derivative instruments | — | | — | | — | | — | | — | | — | | — | | 54,704 | | 54,704 | |
| Realized foreign exchange gain | — | | — | | — | | — | | — | | — | | — | | 3,972 | | 3,972 | |
| Realized other income | — | | — | | — | | — | | — | | — | | — | | 231 | | 231 | |
| Fund flows from operations | 16,907 | | 6,008 | | 2,356 | | 3,118 | | (2,973) | | 2,343 | | 13,693 | | 40,400 | | 81,852 | |
| Vermilion Energy Inc. ■ Page 46 ■ 2021 Second Quarter Report |
| | Six Months Ended June 30, 2021 |
| | Canada | | USA | | France | | Netherlands | | Germany | | Ireland | | Australia | | Corporate | | Total | |
| Drilling and development | 74,531 | | 23,429 | | 15,770 | | 11,872 | | 5,421 | | 238 | | 19,957 | | 5,997 | | 157,215 | |
| Exploration and evaluation | — | | — | | 22 | | (56) | | 685 | | — | | — | | 4,673 | | 5,324 | |
| | | | | | | | | | |
| Crude oil and condensate sales | 285,833 | | 28,156 | | 119,637 | | 920 | | 12,176 | | 23 | | 58,638 | | — | | 505,383 | |
| NGL sales | 35,456 | | 6,018 | | — | | — | | — | | — | | — | | — | | 41,474 | |
| Natural gas sales | 81,367 | | 7,913 | | — | | 60,186 | | 21,193 | | 57,233 | | — | | 567 | | 228,459 | |
| Sales of purchased commodities | — | | — | | — | | — | | — | | — | | — | | 73,615 | | 73,615 | |
| Royalties | (48,775) | | (11,060) | | (16,403) | | (225) | | (1,322) | | — | | — | | (117) | | (77,902) | |
| Revenue from external customers | 353,881 | | 31,027 | | 103,234 | | 60,881 | | 32,047 | | 57,256 | | 58,638 | | 74,066 | | 771,029 | |
| Purchased commodities | — | | — | | — | | — | | — | | — | | — | | (73,615) | | (73,615) | |
| Transportation | (20,104) | | (464) | | (13,523) | | — | | (2,575) | | (2,189) | | — | | — | | (38,855) | |
| Operating | (107,607) | | (7,504) | | (24,382) | | (15,306) | | (13,109) | | (7,814) | | (20,146) | | (110) | | (195,978) | |
| General and administration | (10,412) | | (1,623) | | (5,630) | | (377) | | (2,581) | | 687 | | (1,479) | | (1,747) | | (23,162) | |
| PRRT | — | | — | | — | | — | | — | | — | | (2,873) | | — | | (2,873) | |
| Corporate income taxes | — | | — | | (1) | | (2,362) | | — | | — | | 3,430 | | (413) | | 654 | |
| Interest expense | — | | — | | — | | — | | — | | — | | — | | (38,097) | | (38,097) | |
| Realized loss on derivative instruments | — | | — | | — | | — | | — | | — | | — | | (65,207) | | (65,207) | |
| Realized foreign exchange loss | — | | — | | — | | — | | — | | — | | — | | (7,139) | | (7,139) | |
| Realized other income | — | | — | | — | | — | | — | | — | | — | | 8,236 | | 8,236 | |
| Fund flows from operations | 215,758 | | 21,436 | | 59,698 | | 42,836 | | 13,782 | | 47,940 | | 37,570 | | (104,027) | | 334,993 | |
| | | | | | | | | | |
| | Six Months Ended June 30, 2020 |
| | Canada | | USA | | France | | Netherlands | | Germany | | Ireland | | Australia | | Corporate | | Total | |
| Drilling and development | 162,362 | | 59,543 | | 16,795 | | 5,381 | | 8,692 | | 684 | | 16,202 | | 157 | | 269,816 | |
| Exploration and evaluation | — | | — | | 65 | | (246) | | 2,442 | | — | | — | | 3,901 | | 6,162 | |
| | | | | | | | | | |
| Crude oil and condensate sales | 193,056 | | 26,750 | | 80,118 | | 624 | | 8,414 | | 12 | | 80,767 | | (41) | | 389,700 | |
| NGL sales | 11,630 | | 2,689 | | — | | — | | — | | — | | — | | — | | 14,319 | |
| Natural gas sales | 50,412 | | 2,263 | | — | | 29,633 | | 8,608 | | 24,844 | | — | | 1,548 | | 117,308 | |
| Sales of purchased commodities | — | | — | | — | | — | | — | | — | | — | | 72,226 | | 72,226 | |
| Royalties | (23,462) | | (7,852) | | (13,751) | | (198) | | (1,737) | | — | | — | | (477) | | (47,477) | |
| Revenue from external customers | 231,636 | | 23,850 | | 66,367 | | 30,059 | | 15,285 | | 24,856 | | 80,767 | | 73,256 | | 546,076 | |
| Purchased commodities | — | | — | | — | | — | | — | | — | | — | | (72,226) | | (72,226) | |
| Transportation | (21,603) | | (469) | | (6,472) | | — | | (2,827) | | (2,324) | | — | | — | | (33,695) | |
| Operating | (121,466) | | (9,314) | | (25,915) | | (16,441) | | (10,827) | | (8,064) | | (28,032) | | (254) | | (220,313) | |
| General and administration | (11,548) | | (3,766) | | (6,947) | | (767) | | (3,055) | | (284) | | (1,763) | | (2,099) | | (30,229) | |
| PRRT | — | | — | | — | | — | | — | | — | | (12,475) | | — | | (12,475) | |
| Corporate income taxes | — | | — | | — | | 257 | | — | | — | | (654) | | (335) | | (732) | |
| Interest expense | — | | — | | — | | — | | — | | — | | — | | (37,869) | | (37,869) | |
| Realized gain on derivative instruments | — | | — | | — | | — | | — | | — | | — | | 104,123 | | 104,123 | |
| Realized foreign exchange gain | — | | — | | — | | — | | — | | — | | — | | 12,495 | | 12,495 | |
| Realized other expense | — | | — | | — | | — | | — | | — | | — | | (3,078) | | (3,078) | |
| Fund flows from operations | 77,019 | | 10,301 | | 27,033 | | 13,108 | | (1,424) | | 14,184 | | 37,843 | | 74,013 | | 252,077 | |
| Vermilion Energy Inc. ■ Page 47 ■ 2021 Second Quarter Report |
Reconciliation of fund flows from operations to net earnings (loss):
| | Three Months Ended | Six Months Ended |
| | Jun 30, 2021 | | Jun 30, 2020 | | Jun 30, 2021 | | Jun 30, 2020 | |
| Fund flows from operations | 172,942 | | 81,852 | | 334,993 | | 252,077 | |
| Equity based compensation | (10,536) | | (9,164) | | (27,076) | | (22,161) | |
| Unrealized (loss) gain on derivative instruments | (79,408) | | (3,771) | | (73,966) | | 5,545 | |
| Unrealized foreign exchange loss | (18,298) | | (7,410) | | (44,208) | | (17,392) | |
| Accretion | (10,863) | | (7,288) | | (21,370) | | (17,026) | |
| Depletion and depreciation | (149,651) | | (106,707) | | (255,664) | | (264,514) | |
| Deferred tax (expense) recovery | (63,526) | | 51,126 | | (234,754) | | 308,668 | |
| Gain on business combinations | 17,198 | | - | | 17,198 | | - | |
| Impairment reversal (expense) | 593,606 | | (69,713) | | 1,256,472 | | (1,634,567) | |
| Unrealized other expense | (190) | | (215) | | (387) | | (424) | |
| Net earnings (loss) | 451,274 | | (71,290) | | 951,238 | | (1,389,794) | |
The following table reconciles the change in Vermilion's capital assets:
| | 2021 | |
| Balance at January 1 | 3,107,104 | |
| Acquisitions | 50,447 | |
| Additions | 157,215 | |
| Increase in right-of-use assets | 2,814 | |
| Impairment reversal | 1,256,472 | |
| Depletion and depreciation | (246,092) | |
| Changes in asset retirement obligations | 340,029 | |
| Foreign exchange | (89,271) | |
| Balance at June 30 | 4,578,718 | |
In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States cash generating units ("CGU") due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
The following benchmark price forecasts were used to calculate the recoverable amounts:
| | 2H2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 (2) | |
| Brent Crude ($ US/bbl) (1) | 73.25 | | 69.55 | | 66.42 | | 67.75 | | 69.11 | | 70.49 | | 71.90 | | 73.34 | | 74.80 | | 76.30 | |
| WTI Crude ($ US/bbl) (1) | 71.00 | | 66.30 | | 62.42 | | 63.67 | | 64.95 | | 66.25 | | 67.57 | | 68.92 | | 70.30 | | 71.71 | |
| NBP (€/mmbtu) (1) | 9.17 | | 7.19 | | 5.53 | | 5.65 | | 5.75 | | 5.87 | | 5.99 | | 6.11 | | 6.23 | | 6.35 | |
| Exchange rate (CAD/USD) | 0.81 | | 0.81 | | 0.80 | | 0.80 | | 0.80 | | 0.80 | | 0.80 | | 0.80 | | 0.80 | | 0.80 | |
(1) The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts.
(2) In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates.
The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken:
| Vermilion Energy Inc. ■ Page 48 ■ 2021 Second Quarter Report |
| Operating Segment | CGU | Impairment Reversal (1) | Recoverable Amount | 1% increase in
discount rate | 5% decrease in pricing |
| Canada | Alberta | 88,708 | 988,447 | — | 29,716 |
| Canada | Saskatchewan | 270,897 | 1,500,139 | 80,724 | 156,875 |
| Ireland | Ireland | 133,005 | 339,315 | 9,136 | 23,975 |
| Germany | Germany - Gas | 43,735 | 168,290 | — | — |
| United States | United States | 57,261 | 429,322 | 26,903 | 44,317 |
| Total | | 593,606 | 3,425,513 | 116,763 | 254,883 |
(1) Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken.
In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast oil prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGUs and the recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy.
The following benchmark price forecasts were used to calculate the recoverable amounts:
| | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 (2) | |
| Brent Crude ($ US/bbl) (1) | 64.50 | | 62.08 | | 61.69 | | 62.84 | | 64.02 | | 65.22 | | 66.45 | | 67.70 | | 68.97 | | 70.35 | |
| WTI Crude ($ US/bbl) (1) | 62.00 | | 58.58 | | 57.69 | | 58.84 | | 60.02 | | 61.22 | | 62.45 | | 63.70 | | 64.97 | | 66.27 | |
| Exchange rate (CAD/USD) | 0.80 | | 0.79 | | 0.78 | | 0.78 | | 0.78 | | 0.78 | | 0.78 | | 0.78 | | 0.78 | | 0.78 | |
(1) The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts.
(2) In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates.
The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken:
| Operating Segment | CGU | Impairment Reversal (1) | Recoverable Amount | 1% increase in
discount rate | 5% decrease in pricing |
| Australia | Australia | 82,016 | 189,749 | 6,921 | 19,756 |
| Canada | Alberta | 232,724 | 859,706 | 46,223 | 81,212 |
| Canada | Saskatchewan | 290,241 | 1,206,343 | 69,104 | 143,281 |
| United States | United States | 57,885 | 364,242 | 24,180 | 41,345 |
| Total | | 662,866 | 2,620,040 | 146,428 | 285,594 |
(1) Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken.
Minor Acquisition
In the second quarter of 2021, Vermilion completed a minor acquisition within its Germany Gas CGU for total consideration of $11.6 million, in which $49.2 million in capital assets, $12.4 million in asset retirement obligations, and $7.9 million in deferred tax liabilities were recognized. The acquisition resulted in a gain on acquisition of $17.2 million which was due to increases in commodity prices from the effective date to close.
| 4. Asset retirement obligations |
The following table reconciles the change in Vermilion’s asset retirement obligations:
| | 2021 | |
| Balance at January 1 | 467,737 | |
| Additional obligations recognized | 12,822 | |
| Changes in estimated abandonment timing and costs | 726 | |
| Obligations settled | (10,344) | |
| Accretion | 21,370 | |
| Changes in discount rates | 338,924 | |
| Foreign exchange | (21,995) | |
| Balance at June 30 | 809,240 | |
| Vermilion Energy Inc. ■ Page 49 ■ 2021 Second Quarter Report |
Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 4.7% as at June 30, 2021 (December 31, 2020 - 9.5%) added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined as the yield to maturity on its senior unsecured notes as at the reporting period.
The country specific risk-free rates used as inputs to discount the obligations were as follows:
| | Jun 30, 2021 | Dec 31, 2020 |
| Canada | 1.9 | % | 1.2 | % |
| United States | 2.1 | % | 1.6 | % |
| France | 0.8 | % | 0.3 | % |
| Netherlands | (0.3) | % | (0.6) | % |
| Germany | 0.3 | % | (0.2) | % |
| Ireland | 0.5 | % | (0.1) | % |
| Australia | 1.8 | % | 1.3 | % |
Vermilion defines capital as net debt (long-term debt plus net working capital) and shareholders’ capital. In managing capital, Vermilion reviews whether fund flows from operations is sufficient to fund capital expenditures, dividends, and asset retirement obligations.
The following table calculates Vermilion’s ratio of net debt to four quarter trailing fund flows from operations:
| | Jun 30, 2021 | | Dec 31, 2020 | |
| Long-term debt | 1,769,866 | | 1,933,848 | |
| Current liabilities | 528,180 | | 433,128 | |
| Current assets | (292,774) | | (260,993) | |
| Net debt | 2,005,272 | | 2,105,983 | |
| | | |
| Ratio of net debt to four quarter trailing fund flows from operations | 3.43 | | 4.19 | |
The following table summarizes Vermilion’s outstanding long-term debt:
| | As at |
| | Jun 30, 2021 | | Dec 31, 2020 | |
| Revolving credit facility | 1,403,877 | | 1,555,215 | |
| Senior unsecured notes | 365,989 | | 378,633 | |
| Long-term debt | 1,769,866 | | 1,933,848 | |
The fair value of the revolving credit facility is equal to its carrying value due to the use of short-term borrowing instruments at market rates of interest. The fair value of the senior unsecured notes as at June 30, 2021 was $375.2 million.
The following table reconciles the change in Vermilion’s long-term debt:
| | 2021 | |
| Balance at January 1 | 1,933,848 | |
| (Repayments) borrowings on the revolving credit facility | (195,491) | |
| Amortization of transaction costs | 387 | |
| Foreign exchange | 31,122 | |
| Balance at June 30 | 1,769,866 | |
| Vermilion Energy Inc. ■ Page 50 ■ 2021 Second Quarter Report |
Revolving credit facility
In Q1 2020, we negotiated an extension to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2024.
As at June 30, 2021, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with the following terms:
| | As at |
| | Jun 30, 2021 | | Dec 31, 2020 | |
| Total facility amount | 2,100,000 | | 2,100,000 | |
| Amount drawn | (1,403,877) | | (1,555,215) | |
| Letters of credit outstanding | (15,489) | | (23,210) | |
| Unutilized capacity | 680,634 | | 521,575 | |
The facility can be extended from time to time 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 due at the maturity date. The facility is secured by various fixed and floating charges against the subsidiaries of Vermilion.
The facility bears interest at a rate applicable to demand loans plus applicable margins.
As at June 30, 2021, the revolving credit facility was subject to the following financial covenants:
| | | As at |
| Financial covenant | Limit | Jun 30, 2021 | | Dec 31, 2020 | |
| Consolidated total debt to consolidated EBITDA | Less than 4.0 | 2.76 | | 3.48 | |
| Consolidated total senior debt to consolidated EBITDA | Less than 3.5 | 2.19 | | 2.82 | |
| Consolidated EBITDA to consolidated interest expense | Greater than 2.5 | 9.09 | | 8.12 | |
The financial covenants include financial measures defined within the revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by the revolving credit facility agreement as follows:
| • | Consolidated total debt: Includes all amounts classified as “Long-term debt” and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on the balance sheet. |
| • | Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. |
| • | Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. |
| • | Consolidated total interest expense: Includes all amounts classified as "Interest expense", but excludes interest on operating leases as defined under IAS 17. |
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby if our security adjusted liability management ratings fall below specified limits in a province, a portion of the asset retirement obligations are included in the definitions of consolidated total debt and consolidated total senior debt. An event of default occurs if our security adjusted liability management ratings breach additional lower limits for a period greater than 90 days. As of June 30, 2021, Vermilion's liability management ratings were higher than the specified levels, and as such, no amounts relating to asset retirement obligations were included in the calculation of consolidated total debt and consolidated total senior debt.
As at June 30, 2021 and December 31, 2020, Vermilion was in compliance with the above covenants.
Senior unsecured notes
On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, to be paid semi-annually on March 15 and September 15. The notes mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally with existing and future senior unsecured indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
| Vermilion Energy Inc. ■ Page 51 ■ 2021 Second Quarter Report |
Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
| Year | Redemption price |
| 2021 | 102.813 | % |
| 2022 | 101.406 | % |
| 2023 and thereafter | 100.000 | % |
The following table reconciles the change in Vermilion’s shareholders’ capital:
| | 2021 |
| Shareholders’ Capital | Shares ('000s) | | Amount | |
| Balance at January 1 | 158,724 | | 4,181,160 | |
| Vesting of equity based awards | 2,113 | | 44,852 | |
| Shares issued for equity based compensation | 838 | | 7,693 | |
| Share-settled dividends on vested equity based awards | 218 | | 1,920 | |
| Balance at June 30 | 161,893 | | 4,235,625 | |
The following table summarizes the increase (positive values) or decrease (negative values) to net earnings before tax due to a change in the value of Vermilion’s financial instruments as a result of a change in the relevant market risk variable. This analysis does not attempt to reflect any interdependencies between the relevant risk variables.
| | Jun 30, 2021 | |
| Currency risk - Euro to Canadian dollar | |
| $0.01 increase in strength of the Canadian dollar against the Euro | (712) | |
| $0.01 decrease in strength of the Canadian dollar against the Euro | 712 | |
| | |
| Currency risk - US dollar to Canadian dollar | |
| $0.01 increase in strength of the Canadian dollar against the US $ | 2,976 | |
| $0.01 decrease in strength of the Canadian dollar against the US $ | (2,976) | |
| | |
| Commodity price risk - Crude oil | |
| US $5.00/bbl increase in crude oil price used to determine the fair value of derivatives | (2,276) | |
| US $5.00/bbl decrease in crude oil price used to determine the fair value of derivatives | 1,233 | |
| | |
| Commodity price risk - European natural gas | |
| €0.5/GJ increase in European natural gas price used to determine the fair value of derivatives | (18,145) | |
| €0.5/GJ decrease in European natural gas price used to determine the fair value of derivatives | 17,772 | |
| | |
| Share price risk - Equity swaps | |
| $1.00 increase from initial share price of the equity swap | 3,750 | |
| $1.00 decrease from initial share price of the equity swap | (3,750) | |
| Vermilion Energy Inc. ■ Page 52 ■ 2021 Second Quarter Report |
DIRECTORS Lorenzo Donadeo 1 Calgary, Alberta Larry J. Macdonald 2, 4, 8, 10 Calgary, Alberta Carin Knickel 5, 8, 12 Golden, Colorado Stephen P. Larke 4, 6, 12 Calgary, Alberta Timothy R. Marchant 7, 10, 11 Calgary, Alberta Robert Michaleski 3, 6 Calgary, Alberta William Roby 8, 9, 12 Katy, Texas Manjit Sharma 4,8 Toronto, Ontario Judy Steele 6,12 Halifax, Nova Scotia Catherine L. Williams 4, 6 Calgary, Alberta 1 Executive Chairman 2 Lead Director (Independent) 3 Audit Committee Chair (Independent) 4 Audit Committee Member 5 Governance and Human Resources Committee Chair (Independent) 6 Governance and Human Resources Committee Member 7 Health, Safety and Environment Committee Chair (Independent) 8 Health, Safety and Environment Committee Member 9 Independent Reserves Committee Chair (Independent) 10 Independent Reserves Committee Member 11 Sustainability Committee Chair (Independent) 12 Sustainability Committee Member | OFFICERS / CORPORATE SECRETARY Lorenzo Donadeo * Executive Chairman Curtis Hicks * President Lars Glemser * Vice President & Chief Financial Officer Dion Hatcher * Vice President North America Terry Hergott Vice President Marketing Yvonne Jeffery Vice President Sustainability Darcy Kerwin * Vice President International & HSE Kyle Preston Vice President Investor Relations Jenson Tan * Vice President Business Development Gerard Schut * Vice President European Operations Robert (Bob) J. Engbloom Corporate Secretary * Executive Committee | AUDITORS Deloitte LLP Calgary, Alberta BANKERS The Toronto-Dominion Bank Bank of Montreal Canadian Imperial Bank of Commerce Export Development Canada National Bank of Canada Royal Bank of Canada The Bank of Nova Scotia Wells Fargo Bank N.A., Canadian Branch Bank of America N.A., Canada Branch Citibank N.A., Canadian Branch - Citibank Canada JPMorgan Chase Bank, N.A., Toronto Branch La Caisse Centrale Desjardins du Québec Alberta Treasury Branches Canadian Western Bank Goldman Sachs Lending Partners LLC EVALUATION ENGINEERS GLJ Petroleum Consultants Ltd. Calgary, Alberta LEGAL COUNSEL Norton Rose Fulbright Canada LLP Calgary, Alberta TRANSFER AGENT Odyssey Trust Company STOCK EXCHANGE LISTINGS The Toronto Stock Exchange (“VET”) The New York Stock Exchange (“VET”) INVESTOR RELATIONS Kyle Preston Vice President Investor Relations 403-476-8431 TEL 403-476-8100 FAX 1-866-895-8101 IR TOLL FREE investor_relations@vermilionenergy.com |
| Vermilion Energy Inc. ■ Page 53 ■ 2021 Second Quarter Report |
