internationally diversified sustainable growth and income

104 Pages·2017·3.56 MB·English

INTERNATIONALLY DIVERSIFIED
SUSTAINABLE GROWTH AND INCOME
MAY 2018
VERMILION’S KEY ATTRIBUTES
Global independent E&P with leading positions in high netback businesses in Europe, North America and Australia
►
Self-funded growth-and-income model supported by high margins, low decline rates and strong capital efficiencies
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Defensive issue with multiple risk-reducing attributes: global commodity exposure, project diversification and
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relatively low financial leverage
Consistent production growth from high-return, conventional and semi-conventional projects, coupled with
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inventory depth more typical of an unconventional producer
All major business units generate free cash flow with stable-to-growing production over the long-term
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Substantial employee and director ownership and a consistent record of market out-performance
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VERMILION = HIGH YIELD + FULLY FUNDED HIGH GROWTH + COMMODITY DIVERSIFICATION + LOW RELATIVE MULTIPLE
CAPITAL MARKETS SUMMARY
Market Summary
Trading Price (April 25, 2018) $45.53 (TSX), $35.47 (NYSE)
Ticker Symbol (TSX & NYSE) VET
Shares Outstanding 122.8 million
Average Daily Trading Volume (shares) 0.7 million
Monthly Dividend * $0.23/share
Dividend Yield 6.0%
Director and Employee Ownership ** 6.5%
Capital Structure
Market Capitalization $5.6 billion
Enterprise Value $7.1 billion
Net Debt (including net working capital) $1.5 billion
Net Debt-to-FFO Ratio *** 2.5 x
VERMILION REPRESENTS A DEFENSIVE ISSUE IN A VOLATILE MARKET
* Announced 7% dividend increase to $0.23/share per month on March 1, 2018 effective with the April 2018 dividend. ** Based on fully-diluted shares. *** Net debt to fund flows from
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operations (FFO) -based on trailing twelve month FFO at March 31, 2018. Non-GAAP measures, see Advisory.
CORE OPERATING AREAS
2018E PRE-SPARTAN 2018E POST-SPARTAN
ACQUISITION ACQUISITION
(ANNUALIZED)
PRODUCTION* PRODUCTION*
NORTH
AMERICA
EUR
EUR N.A. N.A.
35%
47% 46% 60%
AUS
AUS
5%
7%
FFO* FFO*
EUROPE
N.A.
EUR
EUR 32% 41% N.A.
52%
59%
AUSTRALIA AUS
AUS
9%
FCF* 7% FCF*
N.A.
19% N.A.
EUR
EUR 40%
52%
AUS
70%
11% AUS
8%
VERMILION IS FOCUSED IN THREE STABLE REGIONS
* Company 2018 estimates as at April 23, 2018. 2018 FFO estimate based on 3 months of actuals, remainder of year at strip as at April 23, 2018: Brent (US$/bbl) $72.37; WTI (US$/bbl) $66.91; MSW = WTI less US$5.95; TTF
($/mmbtu) $9.21; AECO ($/mmbtu) $1.39; CAD/USD 1.28; CAD/EUR 1.58 and CAD/AUD 0.98. Includes existing hedges plus additional contribution from acquisitionofSpartan Energy, announced on April 16, 2018, with an 4
expected closing date of June 15, 2018. FFO is a non-standardized measure (see Advisory).
VERMILION HISTORY
Acquired producing
Issued senior
Launched as an Alberta-based oil & fields from EngieE&P
unsecured notes in Canadian
gas exploration and production company Converted to Deutschland GmbH
High Yield market
Issued senior
Vermilion Energy Trust
IPO in April 1994 at $0.30 per share
unsecured notes in US
Listed
Converted from an income
High Yield market
on the NYSE
trust structure to a corporation
1994 1997 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017
Entered Germany
Entered France Entered Netherlands Entered Entered Ireland Awarded 4exploration
Australia Acquired production in S.E. Saskatchewan concessions in Croatia
Acquired position in Powder River Basin in Entered into farm-in
Wyoming agreement in Slovakia
Awarded concessions in Hungary
Entered into Farm-In
agreement with Exxon in Germany
First gas at Corrib
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STRATEGY
►Self-funded growth-and-income
►Targeting free cash flow and dividend yield compression through per-share growth and risk reduction (low financial and
Capital Markets Model
operating leverage, consistent dividend history, and diversification)
►Cost reductions and inventory improvements allow us to execute our model in a lower-for-longer world
►High rate-of-return conventional/semi-conventional assets consistent with capital markets model (high margins, low decline
rates, and strong capital efficiencies)
►Deep and diversified project inventory, managed at an organic growth rate appropriate to asset base
Operating Model
►Organic growth augmented by opportunistic and accretive M&A, with disciplined acquisition tests to insure that M&A enhances
capital markets model
►Appropriate (not doctrinaire) pursuit of scale and simplicity
►Three regions with stable political, fiscal and regulatory regimes: Europe, North America, and Australia
►These regions offer assets consistent with operating model (inventory depth, positive FCF, and outsized M&A returns)
Geographic Model
►Portfolio flexibility to allocate capital to highest return products and projects
►Typically enter new jurisdictions via producing property acquisition, and patiently consolidate market
►Decentralized business unit structure to effectively manage geographic model
Organizational Model ►Technical focus throughout company
►Centrality of culture and employee engagement as a differentiation mechanism
A DIFFERENTIATED MODEL WITH INTERNAL CONSISTENCY IN ALL ELEMENTS OF STRATEGY
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PRODUCTION GROWTH AND CAPEX
ANNUAL PRODUCTION VS E&D CAPITAL EXPENDITURES RUN-RATE WITH
SPARTAN
100 800
17% CAGR 700
80
600
D
/ 60 500 M

E M
O 400
6% CAGR
B $
40
M 300
200
20
100
0 0
3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 *
0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 E
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1
0
2
PPS
-12% 7% 5% 11% -1% -8% -11% 0% 0% 5% 16% 7% 10% 3% 10%
Growth**
PRODUCTION E&D CAPEX
2018 GUIDANCE
Production guidance of 86,000 to 90,000 boe/d and capital expenditure guidance of $430 million results in year-over-year production growth of
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29%** and production per share growth of 10%**
CONTINUED PRODUCTION PER SHARE GROWTH AT A SIGNIFICANTLY LOWER CAPITAL INTENSITY
* Reflects additional contribution from acquisition of Spartan Energy, announced on April 16, 2018, with an expected closing date of June 15, 2018. ** Production and production per
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share growth (PPS) for 2018 is calculated based on the mid-point of guidance range.
PRODUCTION GROWTH PER SHARE
DEBT-AND-DIVIDEND-ADJUSTED INDEXED PRODUCTION PER SHARE (BASE VALUE = 100)*
COMPANY
250 (% OF PRODUCTION
FROM N.A. GAS)**
PXT (0%)
TOU (84%)
200 VET (24%)
PEY (91%)
BIR (79%)
NVA (60%)
ARX (71%)
150
WCP (18%)
ERF (52%)
BNE (31%)
TOG (12%)
CPG (10%)
100
BNP (71%)
CR (74%)
BTE (20%)
GTE (0%)
50
2013 2014 2015 2016 2017 2018E
TOP QUARTILE PRODUCTION GROWTH WHILE PROVIDING A SUSTAINABLE DIVIDEND
* Source: Peters & Co. (April 2018), excludes VII, VII 2018E indexed production per share is 934.
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** Percentage of production from North American gas derived from company reports for FY2017
E&D CAPITAL BUDGET
2014 Actuals 2015 Actuals 2016 Actuals 2017 Actuals 2018 Budget*
Capital Expenditures by Country
($MM) ($MM) ($MM) ($MM) ($MM)
Canada 336 202 62 149 251
France 148 92 69 73 73
Netherlands 62 47 24 31 35
Germany 3 5 4 9 14
Ireland 94 67 9 1 1
Australia 44 62 60 30 22
USA 1 12 13 19 23
Central and Eastern Europe - - 1 8 11
Total E&D Capital Expenditures 688 487 242 320 430
2014 Actuals 2015 Actuals 2016 Actuals 2017 Actuals 2018 Budget*
Total Development Capital by Category
($MM) ($MM) ($MM) ($MM) ($MM)
Drilling, completion, new well equip and tie-in, workovers and recompletions 438 327 166 226 305
Production equipment and facilities 189 131 50 59 80
Seismic, studies, land and other 61 29 26 35 45
Total E&D Capital Expenditures 688 487 242 320 430
OUR CAPITAL PLAN ENHANCES ASSET VALUE IN A LOW COMMODITY PRICE ENVIRONMENT
* 2018 budget reflects foreign exchange assumptions of CAD/USD 1.25, CAD/EUR 1.49 and CAD/AUD 0.97 and reflects impact of additional capex resulting from acquisition of
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Spartan Energy, announced on April 16, 2018, with an expected closing date of June 15, 2018.
FFO / FCF
FFO FCF (CORPORATE ERA)
$1,200 $600 100,000
RUN-RATE WITH RUN-RATE WITH
SPARTAN SPARTAN
$1,000 $500
)
M 80,000
M )
D
$ $400
$800 ( /E
) *X O
M E 60,000 B
M P $300 (
$ $600 A N
( C O
O D IT
FF & $200 40,000 C
E U
$400 D
S
O
S $100
E R
L P
$200 O 20,000
F $0
F
$0
-$100 0
3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 *
0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 E 0 1 2 3 4 5 6 7 *
02 02 02 02 02 02 02 02 02 02 02 02 02 02 02 810 10 10 10 10 10 10 10 10 E8
2 2 2 2 2 2 2 2 2 1
0
2
LONG-TERM FFO AND FREE CASH FLOW GROWTH DESPITE VOLATILE COMMODITY PRICES
* Company estimates as at April 23, 2018. 2018 FFO estimate based on 3 months of actuals, remainder of year at strip. 2018 stripat April 23, 2018: Brent (US$/bbl) $72.37; WTI (US$/bbl) $66.91; MSW = WTI less
US$5.95; TTF ($/mmbtu) $9.21; AECO ($/mmbtu) $1.39; CAD/USD 1.28; CAD/EUR 1.58 and CAD/AUD 0.98. Includes existing hedges. FFO is a non-standardized measure (see Advisory). Reflects additional 10
contribution from acquisition of Spartan Energy, announced on April 16, 2018, with an expected closing date of June 15, 2018.