Vermilion Energy Inc. Common (Canada)

Good day and welcome to the Vermilion Energy Quarter 3 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to President Curtis Hicks. Please go ahead, sir.

Thank you, Operator. Good morning, ladies and gentlemen. Thank you for joining us. I'm Curtis Hicks, President of Vermilion Energy. With me today are Dion Hatcher, Vice President of North America and incoming President as of January 1st, 2022. Lars Glemzer, Vice President and CFO, Darcy Kerwin, Vice President International and HSE, and Kyle Preston, Vice President of Investor Relations. We will be referring to a PowerPoint presentation to discuss the Q3 2021 results we announced yesterday afternoon. The presentation can be found on our website under Invest With Us and Events and Presentations. Slide two in the presentation refers to our advisory on forward-looking statements. These advisories describe the forward-looking information, non-GAAP measures, and oil and gas terms referred to today, and outline the risk factors and assumptions relevant to this discussion. Let me start off with a summary of our Q3 results on slide three. We delivered strong third quarter results. Production from the quarter averaged 84,633 BOEs a day, which was down slightly from the previous quarter, primarily due to planned maintenance activity. The third quarter is generally a busy period for maintenance activities in Canada, but this year we also had a three-week turnaround scheduled for the Corrib facility in Ireland. This was a major turnaround at Corrib, which occurs only every five years or so, and we're pleased to report that everything went according to plan. The impact from these turnarounds was partially offset by higher production in the Netherlands, Germany, Australia, and the United States, including the contribution from a small bolt-on acquisition in the Powder River Basin in Wyoming. We did have a three-week turnaround planned for Australia in the third quarter as well, but this was deferred until Q4 to optimize work schedules. On the financial side, we delivered funds from operation of $263 million and free cash flow of $196 million. These figures represent a 52% and 109% increase, respectively, relative to the previous quarter. The primary driver for the increase in our financial results was the higher commodity prices. Global commodity prices continued to strengthen during the third quarter, which we were able to take advantage of through our internationally diversified asset base. Vermillion's exposure to global commodity prices is what sets us apart from our North American peers. Not only does this global commodity exposure enhance our revenue and cash flow during strong market cycles, but it also serves to reduce cash flow volatility over the long term. Year to date, we have generated $369 million of free cash flow and expect to generate in excess of $500 million for the full year 2021 based on current strip prices. This significant free cash flow generation has enabled us to accelerate our debt reduction this year, well beyond what we projected when we announced our budget in January 2021. Net debt decreased 5% from the previous quarter to $1.8 billion at the end of Q3 2021 and is down 12% since the beginning of the year. We expect to exit 2021 with net debt in the range of $1.65 billion, which would imply a net debt to trailing funds from operation ratio of approximately 1.8 times. Slide 4. Let me now speak to some of our operational highlights during the quarter, starting with our international business. Production from our international assets averaged 27,612 DOEs a day in Q3 2021, a decrease of 1% from the prior quarter, primarily due to the planned turnaround in Ireland, which I referenced earlier. The impact of the turnaround was largely offset by new production added in the Netherlands and Germany and strong operational uptime in Australia. Most of the activity in Europe during the third quarter was focused on completing and tying in the Nyaha 1 net and Blazdeca 0.5 net gas wells in the Netherlands and the Bergmoor Z5 gas well, 46% working interest in Germany. In the Netherlands, the Nyaha well was tied in during the third quarter, while the Blazdeca well is currently undergoing stimulation operations. In Germany, the Bergmore Z5 well was also brought on production during the third quarter. We continue to advance our exploration initiatives in Europe through the acquisition of additional 3D seismic in the Netherlands and Croatia. We also took physical delivery of the gas plant for the SA-10 block in Croatia, which was shipped from the Netherlands. Once we finish the detailed design work, we plan to finish construction of the gas plant in 2022 which will allow the tie-in of two successful gas wells drilled in 2019, which tested at 15 million a day and 17 million a day, respectively. We expect these wells to be on production in early 2023. Slide five. Moving on to North America. Production from our North American assets averaged 57,022 BOEs a day in Q3 2021, a decrease of 2% from the prior quarter, primarily due to planned maintenance in Canada. Production downtime in Canada was partially offset by strong performance from our United States business unit, including the impact from a strategic bolt-on acquisition, which we completed during the quarter and which I will touch on shortly. In Saskatchewan, we drilled 19 net wells and completed 20 19.5 net wells and tied in the remaining Turner wells from our Q2 drilling program in Wyoming. Results from our Turner drilling program continue to meet or exceed expectations from both a cost and production performance basis. With our growing knowledge of this play and region, we were able to identify and execute a strategic acquisition during the third quarter of 2021. Slide six. The next slide provides a bit more detail on the US acquisition. Although the acquisition was not material from a financial or current production basis, it is a good example of the type of bolt-on opportunities we pursue across all areas of our diversified asset base. The acquisition includes 20,000 net acres of land immediately adjacent to our highlight field in Wyoming, which we acquired in 2018. The assets have current production of approximately 1,500 BOEs a day, 72% liquids. and generate an operating net back in excess of $45 a BOE at current commodity prices. The free cash flow from these assets is expected to self-fund Turner Development over the next five-plus years. The acquisition increases our Turner drilling inventory by 40 locations to 62, consisting of 24 one-mile and 38 two-mile laterals. By expanding our land base, we were able to optimize the number of two-mile wells in this play, which will deliver superior economics. While the Turner is the play that underpins our development of this field, we also believe the acquired acreage is prospective for the Niobrara and Parkman formations based on our initial assessment and recent positive results by nearby industry peers. Across our combined land base in this area, we see over 200 potential drilling locations in the Niobrara and Parkman. It's still early days, but we're encouraged by the results we see from nearby competitors, and we will continue to evaluate our acreage position while monitoring industry activity. Total consideration for the acquisition was US$76 million, which was funded through our credit facility.

Slide 7.