Vermilion Energy Inc. Common (Canada)

I think you're good to go. So good afternoon, ladies and gentlemen. I'd like to begin by welcoming you to Vermilion's annual meeting of shareholders. We will complete the formal part of this meeting first, and afterwards, Dion Hatcher, the President and Chief Executive Officer of the company, will provide you an overview of the business and the strategy moving forward. So, ladies and gentlemen, the meeting will now come to order. My name is Robert Michaleski, and as Chair of the Board of Directors of Vermilion Energy, It is my responsibility and privilege to chair this annual general meeting of the shareholders of a million. Jamie Gagne of Lawson & Liddell LLP will act as secretary of the meeting, and Nazim Nazou of Odyssey Trust Company will act as the scrutineer. In addition to the registered shareholders, I would like to welcome to the meeting all others present here today. At this point, I would like to introduce the other independent directors of Vermilion who are present at the meeting today. James Kleckner Jr., Karen Nicol, Stephen Lark, Timothy Marchant, Manjit Sharma, Myron Stadnik, and Judy Steele. William Roby is on the board, but he is traveling to another meeting today, so unable to be here for this meeting. I would also like to introduce the principal members of our executive committee here today. Dion Hatcher, President, Chief Executive Officer. Lars Glemser, Vice President and Chief Financial Officer. Randy McKaig, Vice President, North America. And Darcy Kerwin, Vice President, International Health and Safety and Environment. The notice calling this annual meeting of shareholders, along with the information circular and former proxy, were mailed on March 28, 2024 to all shareholders as of the record date for this meeting being the close of business on March 13, 2024. As a part of an ongoing stewardship of the environment and a cost-saving measure for the sixth consecutive year, beneficial shareholders received a voting instruction form and a notice and access notification which includes a link to the meeting materials consisting of the proxy statement information circular and the 2023 annual report. This procedure for the electronic delivery of meeting materials is known as notice and access and, as mentioned, is an environmentally friendly alternative that is now used by a number of companies. As in past years, registered shareholders and those beneficiary shareholders that previously requested to receive paper copies continue to receive a printed copy of the meeting materials and a form of proxy. I would ask that copies of all such documents be filed at the minutes of this meeting. A quorum for the transaction of business at today's meeting is at least two people present who hold or represent by proxy at least 25% of our outstanding common chairs. I'm advised by the scrutineer that there is a quorum present. The scrutineer's report is available for inspection and I ask that it be followed with the minutes of this meeting. I hereby declare that this Annual General Meeting of shareholders of Vermilion Energy Inc. be properly convened and regularly constituted to conduct business. Now, there are various matters to be dealt with today. A description of each matter is provided in the information circular, a copy of which is available on our website under the heading Invest With Us and subheading Annual General Meeting. In the interest of time, I do not propose to make a detailed presentation on each item. For the purpose of moving the meeting along, shareholders who are representatives of Vermilion have been asked to move and second the motions to be brought before the meeting. All of the matters of business to be covered today will be voted on by ballot. Registered shareholders, meaning their shareholders, who do not hold their shares to a broker, who have not previously submitted a form of proxy and duly appointed proxy holders should have received ballots upon registering for the meeting. If you have already voted, whether by telephone, through the Internet, or by completing and returning a proxy card mail to you with the information circular, your shares will be voted in accordance with your instructions, and you're not permitted to vote again by way of ballot. If there is any shareholder or proxy holder who has not received a ballot, please identify yourself to us. The first item of business is fixing the number of directors of Vermilion Energy to be elected at 10. May I have a motion to fix the number of directors to be elected at 10?

My name is Yvonne Deffery and I'm a representative of Vermilion and a shareholder. I move that the number of directors of Vermilion Energy Incorporated to be elected be fixed at 10.

Thanks, Yvonne. May I have the motion seconded?

My name is Terry Hurgot. I'm a representative of Vermillion and a shareholder, and I second the motion.

Thanks, Terry. Is there any discussion? Voting on the election of directors will be conducted by way of ballot. The blue ballot is to be used for this matter of business. If you have not yet received one, please raise your hand. If you have not already completed your ballot and deposited it with a scrutineer, please complete the ballot now and sign your name clearly at the bottom of the ballot. Please raise your hand if you have a ballot to be collected and the scrutineer will collect the ballots. Thank you. Based on preliminary voting results for this matter, it is expected that this resolution will be carried. We will continue with the remainder of this meeting's business while the scrutiny retabulates the results of the ballot voting and vies us as to the final results prior to the termination of this meeting. The next item of business is the election of the directors of Vermillion for the ensuing year or until the successors are elected or appointed. As we have done in previous years, we will be nominating and approving individual directors and not a slate of directors. The Board of Directors has adopted policies stipulating that if a director nominee receives a greater number of votes withheld from the election of that director than votes for the election, the nominee will offer to resign. The Governance and Human Resources Committee will then review the matter and recommend to the Board whether to accept the resignation. And the Board's decision to accept or reject the resignation will be publicly announced within 90 days of the meetings. It is expected that resignations will be accepted, except in situations where exceptional circumstances would warrant that the applicable director continue to serve as a board member. The Board of Directors has also adopted By-law No. 2, providing for advance notice of director nominations. I have been advised that no director nominations were received by the company, and accordingly, the nominees for election as a director are the nominees set forth in the information circular for this meeting. The number of directors to be elected at the meeting has been fixed at 10. Information with respect to each of the nominees was set forth in the information circular for this meeting. May I have a motion to nominate each of the nominees as a director of Vermilion Energy, Inc.?

My name is Avril Shraven, and I'm a representative of Vermilion and the shareholder. I nominate each of the following to act as a director for the ensuing year. Dion Hatcher, Robert Michaleski, James Kleppner Jr., Karen Nickell, Steve Lark, Timothy Marchant, William Roby, Manjeet Sharma, Myron Stadnik, and Judy Steele.

Thanks, Avril. I will ask to move the resolution electing those individuals nominated as directors of Vermilion Energy to serve as directors until the close of the next annual meeting of the shareholders or until their successors are duly appointed.

My name is Jeff McDonald, and I'm a representative of Vermilion and a shareholder. I move that each of the 10 persons nominated be elected as a director of Vermilion Energy Inc. to hold office until the close of the next annual meeting of shareholders or until a successor is duly elected or appointed.

Thanks, Jeff. May I have the motion seconded?

My name is Kyle Preston, and I'm a representative of Vermilion and a shareholder, and I second the motion.

Thanks, Kyle. As previously stated, the directors will be elected individually and not as a slate. For a nominee to be elected as a director of Vermilion Energy Inc., the vote cast in favor of the election of the director nominee should represent no less than a majority of the votes cast by shareholders represented in person or by proxy. at this meeting. Is there any discussion? Voting on the election of directors will be conducted by way of ballot. The white ballot is to be used for this matter of business. If you have not yet received one, please raise your hand. If you have not already completed your ballot and deposited it with the scrutiny, please complete the ballot now and sign your name clearly at the bottom of the ballot. Please raise your hand if you have a ballot to be collected and a scrutineer will collect the ballots. Based on preliminary voting results for this matter, it is expected that this resolution will be carried. We will continue with the remainder of the meeting's business while the scrutineer tabulates and provides the results of the ballots prior to the termination of the meeting. The next item of business is the appointment of the auditors of Vermilion. Deloitte, LLP are Vermilion's current auditors and have agreed to act as auditors of Vermilion if appointed. May I have a motion for the appointment of auditors?

I move that Deloitte, LLP be appointed as the auditors of Vermilion to hold office until the next annual meeting of shareholders.

Thanks, Kyle. May I have a second motion?

I second the motion.

Thanks, Avril. Is there any discussion? Voting on the election of the director will be conducted by way of ballot. The pink ballot will be used for this matter of business. If you have not yet received one, please raise your hand. If you have not already completed your ballot and deposited it with a scrutineer, please complete your ballot now and sign your name clearly at the bottom of the ballot. Please raise your hand if you have a ballot to be collected and the scrutineer will collect the ballots. Based on preliminary voting results for this matter, it is expected that this resolution will be carried. We will continue with the remainder of this meeting's business while the scrutineer tabulates and provides the results of the ballot voting prior to the termination of the meeting. The next item of business is the confirmation and approval of bylaw number two, which, as previously mentioned, requires advance notice of director nominations. Bylaw number two was adopted as part of Vermillion's commitment to facilitating an orderly and efficient process for shareholders' meetings, ensuring that shareholders receive adequate notice and sufficient information regarding director nominees, and allowing shareholders to register and form a vote. Further information with respect to by-law number two was set forth in the information circulator for this meeting. May I have a motion for the confirmation approval of by-law number two?

I move that the ordinary resolution to confirm and approve bylaw number two as a bylaw of the company, the full text of which is set out on page 22 of the information circular accompanying the notice of this meeting, be approved. Thanks, Jeff.

May I have the motion seconded?

I second the motion.

Thanks, April. Is there any discussion? Voting on confirmation approval by number two will be conducted by way of ballot. The green ballot is to be used for this matter of business. If you have not yet received one, please raise your hand. If you have not already completed your ballot and deposit with a screen reader, please complete ballot now and sign your name clearly at the bottom of the ballot. Please raise your hand if you have a ballot to be collected. Based on preliminary voting results for this matter, it is expected that this resolution will be carried. We will continue with the remainder of this meeting's business while the scrutiny tabulates and provides the results of the ballot voting prior to termination of the meeting. The next item of business is the advisory vote on executive compensation. As part of a million's ongoing commitment to strong corporate government practices, we continue to hold the non-binding advisory vote vote on the approach to executive compensation commonly referred to as say on pay. In 2023, 93.25% of shareholders supported our say on pay vote. In respect to this meeting, two leading independent third-party proxy advisory firms, ISS and Glass Lewis, have both recommended that shareholders vote for the approval of the proposed say on pay vote at this meeting. May I have a motion for the C on P advisory vote?

I move that on an advisory basis, and not to diminish the roles and responsibilities of the Board of Directors, that the shareholders accept Vermillion's approach to executive compensation disclosed in the information circular accompanying the notice of this meeting.

May I have the motion seconded? I second the motion. Thanks, Yvonne. Is there any discussion? White crowd. Pardon me. Voting on this AMPA advisory vote will be conducted by way of ballot. The yellow ballot is to be used for this matter of business. If you have not yet received one, please raise your hand. If you have not already completed your ballot and deposited it with the scrutineer, please complete the ballot now and sign your name clearly at the bottom of the ballot. Please raise your hand if you have a ballot to be collected and the scrutineer will collect the ballots. Based on preliminary voting results for this matter, it is expected that this resolution will be carried. We will continue with the remainder of the meeting's business while the scrutineer tabulates and provides the results of the ballot voting prior to the termination of the meeting. The next item of business is to table the consolidated audited financial statements of Vermillion for the year ended December 31, 2023 and the report of the auditors thereon. These financial statements were included in Vermillion's annual report, which is mailed to those shareholders who requested the financial statements along with the notice meeting and the information circular. For your ease of reference, links to Vermillion's annual report, which includes the financial statements, are available on our website under the heading Invest With Us Subheadings, Reports and Filings. Are there any questions regarding the financial statements? I have the results of the voting on the ballots. On the matter of fixing the number of directors of Vermilion at 10, Energy at 10, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of this resolution. Therefore, I declare that this motion is carried. On the matter of electing directors of Vermilion Energy Inc., I advise by the scrutineer that for each of the director nominees, greater than a majority of the votes cast have been voted in favour of the election of each director. Therefore, I declare that this motion is carried and each of the nominees for election as director has been elected. On the matter of appointing Lloyd LLP as auditors of Vermilion to hold office into the next annual meeting of shareholders, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of the resolution. Therefore, I declare that this motion is carried. On the matter of approving the confirmation approval of bylaw number two, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of this resolution. Therefore, I declare that this motion is carried. On the matter of the approval of the say-on-pay advisory vote, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of this resolution. Therefore, I declare that this motion is carried. Now, is there any further business? As there's no further business to be fought before this meeting, the meeting is concluded. I will now turn it over to Dion Hatcher, President and Chief Executive Officer of Vermillion, to provide you with an update on our business and strategy moving forward. If you have any questions at the end of the presentation, a microphone will be available to you. We would like to also welcome the people who have just joined us by webcast. Questions can also be addressed from a webcast audience after the presentation is complete. Over to you, Dion.

Thanks, Bob. Good afternoon, everyone, on this snowy, feels like winter day. We'll start with the informal part of the presentation, and we'll just take a few minutes to talk about our Q1 results and the outlook for 24 and beyond. Before we do that, just to remind you, we will be referencing a presentation that can be found on our website, or invest with us, and events and presentations as well. The disclaimer, the advisory information and forward-looking statements is at the end of the presentation. It describes the forward-looking information, non-GAAP measures, and oil and gas terms used today, and it outlines the risk factors and assumptions relevant to this discussion. So 2024 is actually a key milestone year for the company. It was in 1994 that we were a small junior oil and gas company. Through the vision of our founders, Lorenzo, Claudio, and Jeff, When we started this company, we had a differentiated strategy to be an E&P company, one that grew globally through a series of acquisitions. Those acquisitions started in 1997 with France. That was our first international acquisition. After that, we followed up with other acquisitions in Europe, in France, which was key in 1997, but then in Australia as well as the U.S., This global diversification has several strategic advantages. It provides Vermilion with exposure to premium price global products, which helps to provide that outsized net back. It provides us opportunity for capital efficient, often underexploited conventional assets, and it provides access to high return international acquisition opportunities. Vermilion is unique in this strategy. And because of this advantaged business model, we've been able to return a significant portion of our capital to the investors over the years, over $40 a share in dividends. The past four years have been some of the most challenging years in the company's history. We've taken a relentless effort on reducing debt and high-rating the asset base. We have made significant progress on these measures, as we'll talk today, but we do recognize there's still more work to do. I do believe the company is much, much better positioned today with a stronger balance sheet and a stronger asset base, and we are much more resilient. I'm extremely proud of all the hard work our team has done through achieving these goals and repositioning the company for the next 30 years. Well, the first quarter of 24 was another strong quarter for Vermillion. We delivered strong operational results, which was above the upper end of our production guidance. It was really driven by Germany and the U.S., We generated $431 million of fund flows, we invested $190 million of A&D capital, and we generated $241 million of free cash flow for the quarter. This free cash flow helped us reduce debt by another $134 million and achieve our net debt target of $1 billion during the quarter. We finished the quarter with a net debt of $944 million, which is the lowest in over a decade. Reaching our net debt target was a key milestone and allowed us to accelerate our return of capital strategy, and we increased our allocation to 50% of excess free cash flow. This was announced in Q4, and immediately after this announcement, we significantly increased the pace of our shareholder buybacks. We repurchased a million shares in the month of March, bringing the total for Q1 to 2.4 million shares. We've continued this pace into April, and we've bought back another million shares in the month of April as well. In addition to delivering strong production and financial results, we've also advanced all of our key growth projects, in particular in the Montigny, the liquid-rich gas development, the deep gas project in Germany, and our Croatia gas development. I'll expand on each of these projects in the following slides. So starting with our international operations, production came in at 32,546 PUs per day. In Germany, we successfully drilled our first deep gas exploration well and discovered gas in the targeted zone. We plan to commence drilling the second well in Q2. We also made several discoveries in Croatia, where we encountered hydrocarbons in multiple zones in the first three of the four wells we've drilled to date. Investments in these programs are quite key, as they're intended to support the longer-term free cash flow generation of the business, and we're excited to test the results of these wells in Germany and Croatia in the second quarter. Also in Croatia, construction of our gas plant on the SA10 block is nearing completion and is on schedule for mid-year startup. This will allow us to bring on 2,000 BUs a day of gas that's behind pipe that will help to immediately increase our free cash flow. In Australia, we continue to see strong performance from that unit as well as strong pricing in Mondo. We generated the highest net back of our asset base with a $65 BUE net back. As a reminder, we have over 700,000 net acres of land in Germany. We're targeting these deep gas exploration projects, and these prospects that we see, they're on trend with Netherlands. We've been in the Netherlands for almost two decades. We've drilled wells during that period, and we have a success rate of about 70%. So we're quite excited to apply those skills as we work on Germany. The first well, as noted, was successful, Osterheide. and that well was targeting an existing gas field. The well was drilled to a total depth of 5,000 meters where we discovered gas in the targeted zone. This is the deepest well that we've ever drilled in Germany and in Europe for that fact, and it shows the strong operational team that we have in Europe. We're very pleased with these initial results. We plan to test the well in the second quarter as we're preparing for tie-in operations and getting that well on in early 2025. We'll now start planning and drilling the second well, which is Bissellhorst, Now, this well is a higher risk as we're targeting a large prospect that we see on seismic. It's going to take three to four months to drill, and we have a 60% working interest in the second well to help to manage the risk capital associated with exploration drilling. We are in the early innings in Germany. We were quite excited about the outlook and the opportunity we have in front of us. We have identified at least nine individual prospects, and many of these prospects are large enough to have multiple follow-up drilling associated with them. So with success, we see the ability to more than double our Germany business unit over time. In Croatia, construction of the gas plant on the SA10 block is nearing completion. The team is currently testing that facility and conducting the pre-commissioning startup activities in preparation for a mid-year startup. On startup, this unit will add 2,000 buis a day of European gas, which again is exposed to premium pricing in Europe. We expect it to have a net back over $50 per buis. Initial production as a reminder is from the two successful exploration wells we drilled before. These wells were tested at 15 and 17 million cubic feet per day previously. So we're very excited to be nearing the point where we can get these wells on production. Also in Croatia, we drilled two of our four-well program in Q1, and subsequent to the quarter, we drilled our third well. All three of these wells in discrete structures have discovered hydrocarbon in multiple zones. We've had both oil and gas shows in the zones, and it looks very promising given the thickness of some of these zones. We don't know the full extent of the development. We're still at early days as we'll be testing these wells in the next quarter. But having consecutive exploratory success is very exciting on this block, and we're awaiting the test results of these wells as we move into the second quarter. Production from our North American operations averaged 52,959 views today in Q1. Most of that capital was allocated to the Montney development. We've drilled 13 and completed 13 wells, and we brought nine wells on production. As well in the U.S., even though we didn't have operated wells this quarter, we did participate in some non-operated wells in a formation called the Parkman. That's an oil zone. Those wells came online in the quarter and helped to grow production in our U.S. business unit quarter over quarter. Construction of the BC Montney battery is progressing as per plan, as well as we tied in the six wells on the first pad in our Montney position. The picture on slide 20 shows this battery. It's a 16,000 BWD battery that we're currently constructing. It is nearing the completion, and we're expected to start this unit up in late Q2. This battery will more than double our infrastructure capacity in the Montney, and we look to fill that capacity in the upcoming years. Further expansions will be required as we de-bottleneck this facility by adding compression. Ultimately, we are targeting a production rate of 28,000 views per day on our Montney asset. We recently tied in the first six wells, as noted, and we're flowing those wells through our existing bottleneck infrastructure, but the early results of the wells are quite encouraging in line with the strong wells that we drilled in 2023, which you can see the results on this slide. we'll be able to produce those wells at higher rates once we're able to get our battery up and running. In summary, these results are very positive, and we continue to validate the quality of our BC acreage in the Montney. We've also drilled the next five wells. Our program will look to frack those, complete them in the next quarter, and bring them online in Q3. On the cost side, we continue to optimize our drilling and completion activities, which has resulted in cost savings per well of 15%. This is compared to our 23 program. Our 24-hour program uses 17% less water, which reduces costs, but it also reduces the environmental impact. As well, we're further optimizing our well design and our completion activities. In addition to this, we are piloting different completion strategies, and we're also piloting tighter well spacing. We think the combination of these learnings will allow us to improve the efficiency in which we operate and develop this asset for decades to come. In summary, it's a very key year for us in the Monteney as we get the infrastructure in place, start up this next pad, and we're quite excited about the cash flow that this asset will generate for us for decades to come. On the outlook side, we expect to see continued operational momentum as we go into Q2. We'll remain focused on these key growth projects that we've talked about earlier. That's completion and startup of the BC Monteney battery, completion and commissioning of the SA-10 gas plant in Croatia, as well as testing the successful wells that we drilled in Germany and Croatia. Oil gardens may range intact for production, and we expect Q2 production to be in the 83,000 to 85,000 BWD range. Commodity prices as well continue to be supportive, and our financial outlook remains very strong. Looking at the financial forecast for 2024, we're currently forecasting approximately $1.3 billion of fund flow and free cash flow of approximately $700 million. We've also included our preliminary 2025 outlook, which anticipates modest production growth and with fund flows based on backwardation and strip pricing, as well as adjusting for lower hedge gains relative to 2024, we're forecasting about $1.1 billion of fund flow for 2025. As you can see as well, those red bars will continue to reduce debt and continue to strengthen the balance sheet through 2024 and 2025 as we continue to reduce debt and return 50% of our capital to our investors. With that accelerated return of capital pay target at 50% of our excess free cash flow, we would expect to have a robust insured buyback program for the balance of the year. Based on the current forecast, we're projecting the return approximately 10% of our market cap to shareholders, and that'll be through a combination of fixed base dividend and the share buybacks, which we're currently undertaking. Well, we've made a lot of progress over the past few years. I'm actually very excited about the way we're looking at the company as we go forward. We've got a very strong balance sheet now. We've got the lowest debt-to-cash flow in over a decade. We continue to build operational momentum with another strong quarter in Q1. We've got strong runtimes in our legacy assets, and we've talked about the Australia unit, which is back online performing quite well, and we continue to progress our key growth projects in the Monteney, in Croatia, and in Germany. Our near-term return of capital framework provides investors with a growing base dividend and meaningful share buybacks, which we look to augment with modest production growth and opportunistic international acquisitions. We will continue to focus... and operational excellence in executing our 24 plan while maintaining financial discipline. We believe this will set the future for profitable growth as we position the company for the next 30 years. We look forward to providing updates on these key growth projects in the months ahead. So in closing, I would like to thank our shareholders for your continued confidence in Vermillion. Thank you to our board of directors. Thank you to our employees, our contractors, and our service providers for helping us execute our strategy and for your contributions. Well, that concludes the prepared remarks and with that I'd like to open it up for questions. Question in the back. Yeah, I think just over here, sir, if you wouldn't mind.

Just a general question. As you see things going forward, the political environment can be a little tricky in Europe. What are your thoughts on that? especially in Germany at this point. It's not predictable really very much at all at the moment. So I'd appreciate some feedback on that. Also, what do you think is going to be the catalyst to improve sentiment for Vermillion? Because it's not good out there right now. It's not good at all, actually. There's a tremendous amount of sentiment that's in the way of Actually, the facts would say that it should be a much better performing company. It's not at this point. So those are the two things I'd like some comments on.

Thank you. Well, thank you for the questions. Let's start with the first question about Europe. And I think we've been in Europe for most of our 30 years in business, and so it's an area that we know quite well. We continue to execute programs there in all the jurisdictions. And Germany is a really interesting one. I mean, Germany was the epicenter of the crisis when the 40% of the European gas was shut off. So what we've seen, and I think you're seeing this with our capital execution, is Germany's been open to working with us to, you know, within the regulatory framework, help us to accelerate permits and get these wells drilled. And so we're quite excited with having this first well drilled. These are more material targets. And we'll move to the second well, and we've got, you know, some runway here for multiple years for that. So interesting enough, I think Germany is quite pragmatic around their energy sources. 30% of their energy is still coal and lignite, by the way, and they're choosing not to continue to invest in nuclear and shut down the last of that nuclear plant. So that's an economy that for quite a while has been used to consuming gas and I think a little pragmatic around the need for gas. So we're quite excited with the outlook in Germany. On the second question around stock performance, and I think you acknowledged and The slide earlier that showed what's called the fundamentals of the business, how we've been able to reduce debt by $1.2 billion over the last three years. We've been able to hydrate our asset base and increase our fund flows and our free cash flow accordingly. So we're quite excited about that. I mean, the business is fundamentally stronger and I think performing better than it has in recent years. I believe that will translate into stock performance, but I do know the thing that I need to focus on the most is the is the business itself. So there's been some headwinds. I think the overhang on the windfall tax in Europe is one of them. That came out retroactively late in 23, that's very late in 22, and that was definitely an overhang in 23. That is now behind us. We're done with the windfall tax. And so hopefully we can, you know, future investor meetings, that's not a topic of discussion, but clearly that did negatively impact the settlement on the stock. irregardless of the cash flows we were actually generating during those periods. The second would be the Australia unit. I mean, that unit was down last year for about three quarters. That's never a good thing. We are proud to say that that unit in Duandu is back up and running. It's been running quite smoothly for the last three quarters. It's the highest net back in the company. It'll generate in the order of $80 million to $100 million a year of free cash flow. And so we're quite excited about that, and I think those, what we're Headwinds are now behind us, and both of those are successfully looking forward. Return of capital is still fairly new. You know, we bumped it up twice here recently. I think returning 10% of our market cap via the share buybacks, a million shares a month, is quite attractive, and I think we'll see benefits of that over time. So there has been some headwinds and full acknowledge. I think the business, to your point, has improved significantly, and, you know, we have nominally 300 meetings a year with investors, and we'll look to, you know, champion and tell the story of how the business has gotten stronger, and we would look to see that translate into the stock price at the appropriate time. But, again, thank you for your question. Mm-hmm, mm-hmm. Yeah, I think you're talking about the reserves. Yeah, yes, I can kick that off and there's more detail Lars can comment. But just quickly there is, you know, with the asset high grade that we've talked about, we're now allocating more capital to the Montney asset. And we're quite excited as we talk today is how strong those wells are off the 16 to 20 pad. Like these wells come on at 600, 800 barrels of oil. As we got the permits and the clarity on infrastructure through late last year, we get more certainty on the capital allocation to that asset. The good news then is, or bad news, I guess, depending on the reserve point of view, is there's other parts of our business that won't attract capital and that those particular units were in Alberta and Saskatchewan. So as we chose to invest more in the MICA, more in Germany as well, we'll be investing less in Saskatchewan in particular. We still own those lands. We still have those properties. drilling prospects on our lands, but they get recognized separately, and then as a result of how that gets recognized, there's an impact on the business. So that's the back story. You probably know that, but for sure we're focused on investing in the Montigny as well as Germany, where those two assets are very much underbooked and given their early days. Thank you. Any other questions?

Yeah, we do have a few questions on the webcast here. First one on the windfall tax, just wondering a little bit more color on that and how we can be certain that this windfall tax doesn't return at some point in the future.

Yeah, the history of the windfall tax, and it's, I think, helpful to think about why the windfall tax existed at the time. Prices in Europe, the gas prices went exponential. And in Canada, you know, we're used to paying $2 to $3 in MCF for our energy costs as a result of the tragic events in Ukraine and the restriction of gas. That market, the gas price literally went exponential. And so gas went all the way to $100 Canadian. So when you think about that, like it's 50 times higher than what we've ever seen in North America. governments had to respond to that, and their response was tax. As you follow through, of course, again, the sad events in Ukraine are still ongoing, but I think the market there has normalized. Gas prices in Europe today are $12 to $13. They're forecast to be around $14 next year. Still very robust, six to seven times higher than what we see in Canada, so that's an attractive place for us to play capital. The European Union came out late last year, and they did their follow-up analysis to respond to these extraordinary measures that were used to implement this type of retroactive tax, and the outcome of that study was, say, they do not see the need for this policy to go forward, and so it's since expired. It's worth noting that France actually did not implement it in 2023, even though they had the option to. So at this point, the windfall tax from the European Union is behind us, What would bring it back would be the next question. I think it would be exponential prices, right? And we view that as right-way risk. We do not want to see any tragic events anywhere in the world, but if prices were to go super high, that would be the risk and where that would be introduced to our business. To remind investors was basically 30% of the gas was the incremental tax. And so we still were able to produce that gas and sell that gas in around $20-plus dollars which again, you compare that back to Canada where it's two to three bucks. So it's done, and what would bring it back was extraordinary pricing, which we don't see.

Okay, the next question we have relates to our Germany business unit. A number of years ago, we signed a farming agreement with Exxon. Do we still own that land, or have we relinquished it?

We still own that land, yes. As noted, we've got 700,000 acres of land in Germany. A lot seismic over that, existing infrastructure in place. We're quite excited about the potential development in the German unit.

Okay, and the next question, I'll lump these together. We've got a few of these around the dividend. Okay. Do we expect to increase the dividend this year, and why don't we pay a higher dividend as opposed to buying back shares?

Lars, do you want to take this one, or do you want me to? You can have an opportunity here.

Okay.

Yeah, thanks for the question over the webcast there. So as a reminder, we did increase the dividend by 20% for 2024 over the 2023 level. And kind of our view is we want to maintain resilience, financial flexibility within the system. And so our approach is going to be to limit that fixed dividend, ensure that it is sustainable and continually tested against a mid-price deck, which would be $60 oil, 250 North American gas, and then $10, $12.50 European gas. And so we want to make sure that that fixed dividend is sustainable under that price environment. What we are committed to is targeting the 50% return of excess free cash flow to shareholders here in 2024. I think that shareholders within this industry have gotten a lot more comfortable with the variable mechanisms in terms of returning capital. And our preference in terms of how to do that is through the share buybacks. We do still think that there is room for increases in the dividend as we go forward. So what we would like to pair is rateable increases to the base dividend that are sustainable in a price environment much lower than we are at today, and then couple that with that variable return of capital to top up to that target of 50%. So that's the approach that we're taking. We think it's a nice mix of providing a 3% yield today reducing the share count by a pretty significant amount and being able to target that 10% of the market cap in terms of what we're returning.

All right, we have one last question here related to our Canadian operations. Can you explain why the Canadian production was down quarter over quarter and year over year?

Yeah, that's just timing of capital. We've talked about the Montney in particular, which is the bulk of the capital that we're investing in Canada, as noted. The battery itself will be coming on late Q2, and so there's a period here where we're drilling wells, spending quite a bit of capital, but we'll see the benefits of that production in the second half of this year. So timing of capital, and then you've got your natural declines that are kicking in while we're waiting to bring those new wells on, which will be very soon.

We did have one more question come through, and again, related to the dividend. Would we consider a special dividend to top up the base dividend?

The answer is yes, but at this point, we think about capital allocation as a management team. That's what we're paid to do and keep everyone safe as we run our operations. And so when we look at the valuation of the business today, and we talked about how the debt's lower, cash flows are higher, and the running room we have with these key growth projects, we're quite excited with the outlook. We compare that with the valuation of the company in the marketplace, and so we think it's a great allocation of capital to reduce those shares. And so that, you know, right now is the clear priority. If we found ourself in a period of time down the road where the price of the stock was more aligned with what we see the intrinsic value of the company, well, then I think that would, as other management teams have done, provide the option to look at other means of capital return. At this point, we don't see that as an option on the table, but in the future, it would be a good problem to have.

Okay, thanks, Dion. That's all the questions we have from the webcast. I'll open it back up to the audience if there's any more questions. Thank you.

Yeah, maybe, Larry, you can come up and I can kick it off here.

And so just quickly on the windfall tax, the total expenditure of the windfall tax over two years was $300 million. It referenced earlier our cash flow generation in those years. $1.6 billion and $1.2 billion, and that was after the tax. So those years were very, very strong, record years, frankly, for cash flow generation and free cash flow generation for the company. I think your question then is how relating those cash flows to earnings. Just to clarify, so maybe I'll pass over to Lars. Yeah, yeah, yeah.

Yeah, just to summarize sort of the two-year period that you're referencing, sir. So 2022, you know, FFO was kind of in that $1.6 billion range. As prices tempered in 2023, we're at the 1.1 level. The angle you're referencing to is we did have some non-cash impairment charges go through the income statement in 2023. That did push us into a net loss position for the year. Dion touched on it earlier, but what we did in 2023 is we acknowledged the fact that now that we have sort of a runway on the BC side of our Montney asset, we acknowledged within our reserve bookings that that is where a large amount of our capital is going to go over the next five years. The way our reserve book works is you really have to have line of sight to capital in the next five years to be able to book reserves. And so what we did is we wanted to acknowledge kind of our per annum spend level here of call it $600 million to $700 million. And so we de-recognized reserves primarily in the U.S. business unit and the Saskatchewan cash generating unit. And so what that resulted in is less reserves, less book value from a reserve perspective and triggered the write-downs. The other thing to keep in mind is a good chunk of those reserves and those two cash generating units, they were put on in 2018. Bit of a different backdrop than what we have here today. And so a good chunk of those assets were recognized when we issued equity to do the Spartan acquisition with shares kind of in that $43 range. So kind of what you had there was a recognition of capital for a number of years coming off the books. kind of all within that single year of 2023. So that was the primary driver of being in a lost position. Appreciate the comments, the feedback, and I think that's something that we'll take away just to make sure that we're providing the appropriate level of transparency in terms of the driver. So do appreciate that. We will take that away. Thank you.

Thanks, Lars. Just to check, I guess, for Kyle. Oh, one over here.

Gentleman. Yes.

Yes, thank you. So you're right. The Corb unit, which we did that acquisition just a little while ago, very attractive acquisition in excess of 40% to increase our exposure to that asset, which we've operated since late 2015, sorry, 2018. So it is a declining asset, declines 12 to 14% per year, generates a lot of free cash flow for us. Without getting too technical, we do look at ways to reduce the pressure in which that reservoir produces, and so we've just finished a project in which we implemented a refrig plant which helps to reduce pressure, and then we've got some other additional compression projects which helps to reduce the pressure. We see the ability of that reservoir to produce out to mid 2030s, and we'll continue to look for ways to extend that. There are options to drill in that reservoir, but it is an offshore asset, so the cost to drill those wells are expensive. So we do contrast that, and that's the strength of Vermillion. We have these different business units to say, are we better to drill another well in Corb or drill an onshore well in Germany that we believe is quite attractive? But we do have opportunities at this point. We're focusing on our onshore operations to drill in Germany and Netherlands that we think are more attractive. So that's our focus there, and as that free cash flow comes out of That Irish unit, again, we'll look to redeploy a portion of that to our business to be able to grow our free cash flow for years to come. It might not be core, but the business we're in as a management team is to redeploy. And then the other 50% of excess gets returned to our investors. So does that help address the question? Yeah, great. Thank you. Thank you. Other questions? Okay, well, I think the... Refreshments are open in the back, so I encourage you to have a refreshment. I just, again, want to thank everyone for attending. We do appreciate your support and confidence in the management team, and we'll continue to work very hard to better position the business and look forward to updating you again next year. So, again, thank you.