Vermilion Energy Inc. · TSX:VET
Vermilion Energy — Investor Presentation (May 2022)
47 slides from Vermilion Energy's investor presentation, May 2022
Slide 1: Vermilion Energy Investor Presentation
MAY 2022 VERMILION ENERGY INVESTOR PRESENTATION INTERNATIONALLY DIVERSIFIED | FREE CASH FLOW FOCUSED | ESG LEADERSHIP
Slide 2: Vermilion's Key Attributes
VERMILION’S KEY ATTRIBUTES PRODUCTION 2022E PRO FORMA CORRIB & LXE ACQUISITIONS(3) ► Compelling investment with growing free cash flow(1), accelerated deleveraging and OIL (BRENT) return of capital 15% EUROPEAN GAS o Trading at one of the highest FCF yields (~35%)(1,2) and one of the largest valuati
Slide 3: Vermilion's Key Attributes
VERMILION’S KEY ATTRIBUTES ► Financially disciplined with a focus on balance sheet strength and returning capital to shareholders o 2022E year end net debt(1) of ~$1.1B(2) with a net debt to trailing FFO ratio of ~0.5x(2,3) o Return of capital will be a staged approach that increases over time as fu
Slide 4: Capital Markets Summary
CAPITAL MARKETS SUMMARY Market Summary Trading Price (May 4, 2022) $27.76(TSX), $21.80 (NYSE) Ticker Symbol (TSX & NYSE) VET Shares Outstanding (March 31, 2022) 162.4 million Average Daily Trading Volume (shares) 1.9 million (TSX), 2.3 million (NYSE) Quarterly dividend $0.06/share Director and Emplo
Slide 5: ESG Leadership
ESG LEADERSHIP Environmental Vermilion is committed to reducing the environmental impact of traditional energy production, enriching and caring for the communities in which we live and work, and maintaining our strong corporate governance ► CDP Climate and Water scores of “B” in 2021 have us tied fo
Slide 6: Building a Sustainable Future
BUILDING A SUSTAINABLE FUTURE VERMILION RECOGNIZED BY BMO AS AN INDUSTRY LEADER IN ESG ► Vermilion continues to rank in the top quartile in emissions intensity ► Relative to its peers, Vermilion ranks well on total fresh water use per barrel of oil ► Vermilion has strong ESG governance with a focuse
Slide 7: Value Driven Acquisition Strategy
VALUE DRIVEN ACQUISITION STRATEGY ► Target underexploited consolidation opportunities and new development within existing core areas o Accretive while minimizing equity dilution to maximize per share value o Generates strong free cash flow in a mid-cycle pricing environment to support a sustainable
Slide 8: Inventory and Reserve Life Optimization
INVENTORY AND RESERVE LIFE OPTIMIZATION ► 2021 1P and 2P reserve life index increased to 9.7 16 years and 15.4 years, respectively 14 ► Leucrotta expected to significantly increase 1P and 2P 12 RLI as we achieve plateau production supported by multi-decade inventory 10 YEARS ► Leucrotta adds 20+ yea
Slide 9: Corrib Consolidation Acquisition
CORRIB CONSOLIDATION ACQUISITION ► Acquisition of an incremental 36.5% interest, increases our operated ownership to 56.5% o ~7,700 boe/d of 2022E production expected to generate FCF of ~$400MM(1) o Total consideration of ~$600MM (including contingent payment), with an effective date of Jan 1, 2022
Slide 10: Leucrotta Acquisition Overview
LEUCROTTA ACQUISITION OVERVIEW ► Vermilion to acquire Leucrotta Exploration Inc. for total cash consideration of $477 million ► Enhances North American depth and quality of inventory: o Multi-zone, inventory-rich Montney land base of 81,000 (77,000 net) acres; 20+ years of high value Tier 1 drilling
Slide 11: Pro Forma Financial Outlook
PRO FORMA FINANCIAL OUTLOOK Base Corrib & Pro Forma 2022E(1) Vermilion Leucrotta w/ Corrib & ► Our internationally diversified asset portfolio Acquisitions Leucrotta generates significant FFO and FCF FFO (unhedged) $2.2B $0.6B $2.8B ► Continue to anticipate reaching $1.2B debt FCF (unhedged) $1.8B $
Slide 12: Acquisitions Fully Funded with 2022 FCF
ACQUISITIONS FULLY FUNDED WITH 2022 FCF Excess FCF Options: • Debt Repayment • Increase Base Dividend • Share Buyback ► 2022 budgeted FFO on Nov 2021 pricing was FREE CASH FLOW ALLOCATION • Special/Variable Excess FCFDividend Options: ~$1.2B 2,500 • Debt Repayment • Increase Base Dividend ► Corrib a
Slide 13: Enhanced Value on a Per Share Basis
ENHANCED VALUE ON A PER SHARE BASIS ACCRETIVE PRODUCTION GROWTH ► Announced in excess of $1.2 billion of strategic PRODUCTION PER SHARE (BOE/D PER MM SHARES) acquisitions in 2021 and 2022 100,000 600 ► Acquisitions were done without issuing equity and 95,000 580 560 diluting shareholders 90,000 540
Slide 14: International Diversification
INTERNATIONAL DIVERSIFICATION 14
Slide 15: Three Core Operating Areas
THREE CORE OPERATING AREAS 2022E PRO FORMA CORRIB & LXE ACQUISITIONS(1) PRODUCTION E&D CAPEX INT INT 42% N.A. 38% 62% N.A. 58% FFO FCF INT N.A. N.A. INT 58% 38% 42% 62% VERMILION FOCUSED IN THREE CORE AREAS – NORTH AMERICA, EUROPE AND AUSTRALIA (1) Based on company estimates, pro forma Corrib Januar
Slide 16: Advantages of Internationally Diversified Portfolio
ADVANTAGES OF INTERNATIONALLY DIVERSIFIED PORTFOLIO ► Business drivers o Premium pricing drives top decile netbacks o High quality conventional assets reduces corporate decline rates o Estimated corporate decline rate in the low 20% o Unique high IRR acquisition opportunities (e.g. Corrib) o Diversi
Slide 17: Global Crude Oil Pricing Advantage
GLOBAL CRUDE OIL PRICING ADVANTAGE OIL PRICES ► In aggregate, Vermilion’s global crude oil portfolio has $130 sold at an average $5/bbl premium to the Canadian light $120 oil benchmark (MSW) over the past 7 years $110 $100 ► Approximately 38% of Vermilion’s crude oil production is $90 priced with re
Slide 18: Premium European Natural Gas Pricing
PREMIUM EUROPEAN NATURAL GAS PRICING ► European natural gas forward price currently trading at GLOBAL NATURAL GAS PRICES ~C$40/mmbtu in 2022 and ~C$32/mmbtu in 2023 o Significant premium to North American benchmarks $45 ~C$41/ mmbtu ► This premium has significantly increased recently due to: $40 o G
Slide 19: European Gas Market Fundamentals
EUROPEAN GAS MARKET FUNDAMENTALS ► Europe consumes approximately 45-50 Bcf/d of natural gas, with demand increasing due to energy transition government policies * ► Power sector gas use is expected to grow during the transition o Germany is shutting down nuclear generation and has recently accelerat
Slide 20: Enhanced Operating Netback
ENHANCED OPERATING NETBACK 2022E OPERATING NETBACKS $100.00 100% $90.00 90% 2022E OPERATING NETBACK ($/BOE)* 2022E LIQUIDS WEIGHTING (%)* $80.00 80% $70.00 70% $60.00 60% AVERAGE = $50.99 $50.00 50% $40.00 40% $30.00 30% $20.00 20% $10.00 10% $0.00 0% VET** CPG BTE TVE WCP NVA ERF ARX POU KEL PEY BI
Slide 21: Focus on Free Cash Flow & Profitability
FOCUS ON FREE CASH FLOW & PROFITABILITY 21
Slide 22: Pillars of Shareholder Value
PILLARS OF SHAREHOLDER VALUE MAXIMIZING LONG-TERM SHAREHOLDER VALUE BALANCE SHEET SHAREHOLDER MAINTAIN A ROBUST & OPPORTUNISTIC STRENGTH RETURNS RESILIENT PORTFOLIO ACQUISITIONS ► Consensus YE 2022* ► Paid over $40/share of ► 2P RLI > 15 years ► Ireland Corrib gas net debt of $1.1B and dividends 200
Slide 23: Free Cash Flow Allocation Framework
FREE CASH FLOW ALLOCATION FRAMEWORK NET DEBT AND NET DEBT TO TRAILING FFO RATIO FREE CASH FLOW ALLOCATION FRAMEWORK 2,500 5.0x BALANCE SHEET STRENGTH & RETURN TO SHAREHOLDERS 2,000 4.0x ACQUISITIONS 1,500 3.0x FREE CASH 1,000 2.0x $MM FLOW 500 1.0x 0 0.0x -500 -1.0x ► BALANCE SHEET STRENGTHEN TO ► S
Slide 24: Free Cash Flow
FREE CASH FLOW $12.00 $2,000 $10.00 $8.00 $1,500 C$/SHARE $MM $6.00 $1,000 $4.00 $500 $2.00 $0 $0.00 2018 2019 2020 2021 2022E* E&D CAPEX FCF PRO FORMA CORRIB & LXE ACQ. CASH FLOW FROM OPERATING ACTIVITIES FCF/SHARE OUR HIGH MARGIN, LOW DECLINE ASSETS GENERATE SIGNIFICANT FREE CASH FLOW * Based on c
Slide 25: Compelling Valuation
COMPELLING VALUATION 2023E FCF YIELD* 2023E EV/DACF* 40% 5.0x 4.5x 35% 4.0x 30% 3.5x AVERAGE = 18% AVERAGE = 3.1x 25% 3.0x 20% 2.5x 2.0x 15% 1.5x 10% 1.0x 5% 0.5x 0% 0.0x VET CPG ERF SDE BTE WCP TVE NVA PEY KEL BIR HWX POU ARX TOU AAV VET CPG ERF SDE BTE WCP KEL TVE NVA PEY POU ARX BIR HWX AAV TOU 2
Slide 26: Value Creation 1994 - Current
VALUE CREATION 1994 - CURRENT MARKET CAPITALIZATION(3) TOTAL VALUE $4.5B CREATION OF $5.2B DIVIDENDS EQUITY PAID(2) ISSUED(1) $3.9B ($3.2B) VERMILION HAS GENERATED SIGNIFICANT SHAREHOLDER VALUE OVER THE PAST 27 YEARS (1) Equity issued for cash and acquisitions since 1994, including all shares issued
Slide 27: Balance Sheet
BALANCE SHEET 27
Slide 28: Balance Sheet Composition
BALANCE SHEET COMPOSITION CURRENT CREDIT CAPACITY $2.5B ► No near-term maturities PRO FORMA AS AT APRIL 30, 2022* o Covenant-based credit facility termed out to May 2026 $1,750 o US$400 million Senior Notes termed out to May 2030 $1,500 o May 2025 redemption price at 103.438% (declining thereafter $
Slide 29: Financial Leverage
FINANCIAL LEVERAGE LEVERAGE RATIOS 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x VERMILION TARGETED LEVERAGE RANGE 1.5x 1.0x 0.5x 0.0x 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E* NET DEBT TO FFO* NET DEBT TO EBITDA* ** FORECASTING TO ACHIEVE TARGETED LEVERAG
Slide 30: Pro Forma Commodity Hedge Position
PRO FORMA COMMODITY HEDGE POSITION 2022 2023 100% 100% PERCENTAGE OF PRODUCTION HEDGED (%)* PERCENTAGE OF PRODUCTION HEDGED (%)* 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Crude Oil European N.A. Corporate Crude Oil European N.A. Corporate Natural Gas Natural Gas T
Slide 31: Summary
SUMMARY ► Compelling investment with growing free cash flow, accelerated deleveraging and return of capital, currently trading at the lowest valuations compared to our peers ► Unique portfolio of internationally diversified assets that provide exposure to premium global commodity prices which result
Slide 32: Asset Overview
ASSET OVERVIEW 32
Slide 33: Vermilion Production History
VERMILION PRODUCTION HISTORY 105,000 90,000 75,000 60,000 BOE/D 45,000 30,000 15,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E* E&D CAPEX 119% 103% 81% 81% 85% 94% 47% 53% 62% 58% 73% 38% 22% AS % OF FFO North America International Pro Forma Corrib & LXE Acq. LOW REINVESTME
Slide 34: Europe Asset Overview
EUROPE NETHERLANDS GERMANY IRELAND ► #2 onshore gas producer ► Established production operations ► 20% operated interest in the Corrib ► Large and growing inventory of drilling opportunities and substantial exploratory land Natural Gas Project position in the North German Basin ► 56.5% operated inte
Slide 35: CEE Exploration Potential
CEE EXPLORATION POTENTIAL VERMILION HAS BUILT A HIGHLY PROSPECTIVE EXPLORATION PORTFOLIO ACROSS CEE ► Approximately 2.0 million net acres of undeveloped land in the Pannonian basin across three countries ► Focused on under-invested basins prospective for both oil and gas that can benefit from new te
Slide 36: Australia
AUSTRALIA ► 100% operated interest in Wandoo, an offshore oil field approximately 80 km N.W. of Australia (55m water depth) ► Horizontal well development with 19 producing wellbores and five dual lateral sidetracks tied into two platforms ► Two well-program planned for Q2 2022 ► Contracted Wandoo cr
Slide 37: North America
NORTH AMERICA CANADA ► Targeting light oil and condensate-rich natural gas in West Central Alberta, light oil in SE Saskatchewan and shale gas in the Peace River Arch straddling the AB and BC borders ► ~400,000 net acres in West Pembina targeting the Mannville (2,400 – 2,700m depth) and Cardium (1,8
Slide 38: Montney Evaluation Process
MONTNEY EVALUATION PROCESS ► Vermilion team has extensive experience in the Montney o VP Geosciences and multi-disciplined technical team with direct and proven experience in the Montney NEBC o Identified Peace River Arch as a Montney sweet-spot with less Core Leucrotta competition Acquisition ► Ver
Slide 39: Leucrotta Asset Details
LEUCROTTA ASSET DETAILS ► Primary asset is the Mica property in the Peace River Arch straddling the Alberta and British Columbia borders Upper Target – Tier 1 ► Comprised of 81,000 gross (77,000 net) contiguous acres of >15 years Inventory IRR > 100% Montney mineral rights ► Conservatively identifie
Slide 40: Mica Development Plans
MICA DEVELOPMENT PLANS ► Forecast to produce approximately 13,000 boe/d in 2023 4-30 BC AB 5-19 ► Infrastructure plan is in place to achieve a production base of 28,000 boe/d with the option to expand 8-4 A13-7 13-7 ► Longer-term development plan maintains optimal production level Proposed Water Hub
Slide 41: Appendix
APPENDIX 41
Slide 42: Pricing and FFO Sensitivity
PRICING AND FFO SENSITIVITY COMMODITY PRICES* 2022E 2022 ANNUAL FFO SENSITIVITY (C$MM)** (Includes Impact of Corrib Acquisition) Brent (US$/bbl) $103.21 FFO Impact (C$) FFO Impact (C$) Change Hedged Unhedged WTI (US$/bbl) $98.23 LSB = WTI less (US$/bbl) $3.39 WTI & Brent US$1/bbl $10.6MM $16.2MM MSW
Slide 43: Environmental Sustainability
ENVIRONMENTAL SUSTAINABILITY ► We are playing a meaningful role in the energy transition by reducing the environmental impact of our traditional energy production and developing renewable energy projects o We have near-term and long-term emission reduction targets o We deploy energy and emissions ef
Slide 44: Emission Reduction Targets
EMISSION REDUCTION TARGETS ► In April 2021, Vermilion introduced near-term and long-term emission reduction targets o Aspirational target of net zero emissions in our operations, including Scope 1 and Scope 2 emissions, by 2050 o Reducing Scope 1 emissions intensity from our operations by 15 to 20%
Slide 45: Sustainability Projects
SUSTAINABILITY PROJECTS ► Vermilion is committed to advancing environmental sustainability, economic inclusivity and creating partnerships within the communities in which we live and work PARENTIS SUSTAINABILITY PARTNERSHIP LA TESTE ECO-NEIGHBOURHOOD ► Our recycled geothermal energy tomato greenhous
Slide 46: 2022 Budget
2022 BUDGET E&D CAPITAL BUDGET GUIDANCE ► 2022 E&D capital budget of $500 million $600 $500 o North America - $290 million $400 $300 $MM o International - $210 million $200 $100 ► 2022 annual production guidance increased to 86,000 to $0 2020 2021 2022 Budget 88,000 boe/d (excluding Corrib Acquisiti
Slide 47: Advisory
ADVISORY This presentation is for information purposes only and is not intended to, and should not be construed to constitute, an offer to sell or the solicitation of an offer to buy, securities of Vermilion. This presentation and its contents should not be construed, under any circumstances, as inv