Vermilion Energy (VET) Tops Q1 EPS by 15c

Vermilion Energy (NYSE: VET) reported Q1 EPS of $0.26, $0.15 better than the analyst estimate of $0.11. Revenue for the quarter came in at $481.08 million versus the consensus estimate of $225.21 million.

Highlights

• Q1 2019 production averaged 103,404 boe/d, representing a 2% increase over the prior quarter, due to increases in Australia, Canada, the US, Germany and France.
• Fund flows from operations ("FFO") for Q1 2019 was $254 million ($1.66/basic share(1)), an increase of 14% from the previous quarter (14% on a per share basis) as a result of higher production and realized commodity pricing, partially offset by higher cash taxes. FFO for Q1 2019 increased 58% (27% on a per share basis) compared to the same quarter last year due to higher production, which was partially offset by lower commodity pricing and higher cash taxes.
• In Australia, production averaged 5,862 bbl/d in Q1 2019, an increase of 40% from the previous quarter primarily due to the contribution from the two (2.0 net) well program completed at the end of January 2019.
• In Canada, production averaged 61,360 boe/d in Q1 2019, an increase of 1% from the prior quarter, primarily driven by new well completions.
• In the United States, Q1 2019 production averaged 3,653 boe/d, an increase of 3% from the prior quarter, primarily driven by a full quarter contribution from our first Hilight well drilled in the prior quarter.
• In Germany, production in Q1 2019 averaged 3,763 boe/d, an increase of 1% from the prior quarter. The increase is primarily due to better than expected results from workovers performed on our operated oil assets. Late in the quarter, we commenced drilling of the Burgmoor Z5 well (46% working interest), marking the first operated drilling program by Vermilion in Germany.
• In the Netherlands, Q1 2019 production averaged 8,677 boe/d, a 1% decrease from the prior quarter. We continue to make progress on the permitting for our two (1.0 net) 2019 planned wells. We received the drilling permit for one well during the first quarter, and are currently awaiting regulatory decisions on two additional wells, which should enable us to execute our planned program for this year.
• In Ireland, production averaged approximately 52 mmcf/d (8,619 boe/d) in Q1 2019, a decrease of 1% from the prior quarter. In our first full quarter as operator of the Corrib Project, we completed some minor projects and activities previously identified to increase uptime and optimize plant compression to increase gas throughput. We will continue to evaluate other optimization opportunities throughout 2019 as we build more first-hand knowledge as operator.

Message to Shareholders

We delivered strong operational and financial results in Q1 2019. Production increased 2% quarter-over-quarter to 103,404 boe/d and FFO increased 14% from the prior quarter to $254 million. While global benchmark commodity prices were weaker in Q1 2019 compared to the prior quarter, we benefited from a significant improvement in Canadian benchmark prices and continued positive operational momentum across our asset base. On a per share basis we generated $1.66(1) of FFO in Q1 2019 compared to $1.31 in Q1 2018, representing a year-over-year increase of 27% despite most commodity benchmark prices being lower over this comparative period, reflecting accretion from the acquisitions we completed in 2018 and our ongoing organic development activities. Our Australian and Canadian business units were responsible for most of the growth in Q1 2019 as we brought two new offshore wells on production in Australia and executed one of our most active drilling programs to date in Canada. We achieved increased production despite an unusually active cyclone season in Australia, which resulted in 11 days of downtime at Wandoo and extremely cold weather conditions in our producing areas in Canada and the US.

We are committed to our capital markets strategy of sustainable growth and income. With all business units contributing strong development results to-date and most completion and tie-in activities in North America completed at break-up, we expect to deliver robust year-over-year production per share growth in 2019 of 8% or more, while paying a sustainable dividend which is currently yielding approximately 8%. We typically have a front-loaded capital program which seeks to finish as much Canadian drilling and tie-in activity ahead of break-up as possible, and this year was no exception, with nearly 40% of our annual capital investment for Exploration and Development ("E&D") activities executed in Q1 2019. As a result, our total payout ratio exceeded 100% for the quarter. However, based on the current commodity strip, our annual capital program and dividend are more than fully funded with a forecasted total payout ratio of approximately 90%. As we have previously indicated, our intent is to allocate any excess cash generated beyond the capital program and dividend towards debt reduction, targeting a debt-to-FFO leverage ratio of 1.5 times or lower. In Q2 2019, we negotiated an extension to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2023. The closing of the amendment is expected to take place before the end of April, 2019.

For earnings history and earnings-related data on Vermilion Energy (VET) click here.

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