Vermilion Energy Inc. Common (Canada)

This time, I would like to welcome everyone to the Vermilion Energy Q2 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star two. Thank you. Mr. Dion Hatcher, you may begin your conference.

Thank you, Julie. Thank you, Julie. Well, good morning, ladies and gentlemen. Thank you for joining us. I'm Dion Hatcher, President and CEO of Vermillion Energy. With me today are Lawrence Glemster, Vice President and CFO, Darcy Kerwin, Vice President International and HSE, Bryce Kremnicka, Vice President North America, Jensen Tan, Vice President of Business Development, and Kyle Preston, Vice President of Investor Relations. We'll be referencing a PowerPoint presentation to discuss our Q2 2023 results. Presentation can be found on our website under invest with us in events and presentations. Please refer to our advisory and forward-looking statements at the end of the presentation. It describes forward-looking information, non-GAAP measures, and oil and gas terms used today, and outlines the risk factors and assumptions relevant to this discussion. Production during the second quarter averaged 83,152 bees per day, which was at the top end of our Q2 guidance range of 80 to 83,000. We revised our Q2 production guidance in mid-May to reflect the temporary shut-in of approximately 30,000 bees a day in west central Alberta due to forest fires. Combined impact of Q2 volumes from the wildfires and the Australia downtime was approximately 8,000 bees per day. Our team was quick to respond to the fire situation in Alberta and was able to safely restore all of the production within weeks of the initial shut-in, which minimized the impact of the fire. In addition, we achieved strong operational performance across many of our other assets. We generated $247 million of fund flows and invested $167 million of E&D capital, resulting in $80 million of free cash flow, of which we returned $40 million to shareholders via the base dividend and share buybacks, representing a return on capital payout of approximately 50%. During the first half of 2023, we have declared $33 million in dividends and repurchase $54 million of our common shares, representing $87 million returned to our shareholders. We continue to target shareholder returns of 25% to 30% of free cash flow for 2023, with debt reduction remaining the priority until we achieve our next net debt target of $1 billion. Net debt at the end of Q2 decreased slightly to $1.3 billion, representing a trailing net debt to fund flow ratio of 1 times. Given the front-end weighting of our capital program, combined with higher forecast production and cash flows in the back half of the year, we anticipate generating more free cash flow in the second half, which should translate to accelerated debt reduction. Production from our North American operations averaged 54,064 BUs today in Q2, a decrease of 10% or 6,000 BUs per day from the prior quarter, mainly due to the disposition of approximately 5,500 BUs a day of higher-cost assets in our southeast Saskatchewan and approximately 4,000 BUs a day of fire-related downtime in west-central Alberta. We were able to partially offset this impact with organic production growth from our Mica, Montney, southeast Saskatchewan, and the U.S. assets, which added approximately 3,400 BUs a day combined in Q2. All the production that was temporarily shut in as a result of the wildfires has been restored thanks to the hard work of our employees and contractors. Although there was no major damage to our facilities or well sites, we will continue to monitor the forest fire and take any necessary action to ensure the safety of our people and assets. We again want to thank our operations staff for the safely restoring production during this difficult period. In West Central Alberta, we completed one and brought on production five Manville liquid-rich gas wells. In Micah, we drilled two, completed four, and brought on production one Montney liquid-rich gas well. In Saskatchewan, we drilled, completed, and brought on production one oil well. In the U.S., we drilled seven, completed ten, and brought on production five oil wells in Wyoming. As part of our activity in the quarter, we participated in the drilling of two non-operated Parkland wells and one non-operated Niagara well. We continue to evaluate these formations as they relate to future development prospects on our Petro River Basin acreage in Wyoming. Across North America, we are seeing strong overall performance from our capital program and ongoing operations, which has helped in mitigating the impact of fire-related downtime in Alberta. Our recent B.C. Montney wells at MICA continue to perform very well, with minimal declines seen over the first 120 days of production. B.C. pad results validates our Tier 1 inventory in B.C. and presents an opportunity for future downspacing. Our 2024 program will be focused exclusively on our B.C. lands, with approximately 10 wells on or out sitting the 16-28 pad. We recently received the final permit required for the construction of the 16,000 Burea Day battery on the BC lands and are planning to start site preparation later this year. The majority of this construction will occur in the first half of 2024 and will be funded through a financing agreement with a third-party mystery company. This agreement was part of the MICA acquisition. We are excited to execute the next expansion phase and look forward to providing future updates in the quarters ahead. Production from our international operations averaged 29,087 BUs per day, an increase of 30% from the prior quarter, mainly due to the acquisition of additional working interests in CORE, which closed on March 31st of this year. This acquisition added approximately 7,000 BUs a day of premium-priced European natural gas production. Ireland's production more than doubled in Q2 to an average of 11,251 BUs a day to the due to the closing of this acquisition as well as better than forecast operational run rates. In the Netherlands, we completed one conventional gas well from our Q1 drilling program. In Germany, we continue to advance our deep gas exploration and development plans as we prepare for our first well to be drilled in the fourth quarter of this year. In Australia, we completed all remaining inspections and repair work within the primary systems of the platform at the end of Q2 and made preparations to restart the facility. As a result, we expect higher operational run rates with less unplanned downtime in the future. Inspection and repair work completed on the platform was conducted in a safe and efficient manner without incident.

We would again like to thank our staff and contractors for their diligence in executing a safe and successful program. After completing all inspections and repair work within the primary systems on the platform,