Vermilion Energy Inc. Q2 FY2025 earnings call

• Vermilion delivered strong Q2 results with production increase due to Westbrick acquisition and subsequent asset sales for debt reduction.
• Now has a production base with 70% weighted to natural gas, over 90% from global gas assets, and expects over 80% capital investment in global gas assets.
• Generated $260M fund flows from operations and $144M free cash flow in Q2. Capital expenditures down due to seasonality and asset divestment deferrals.
• Activity in Q2 focused on global gas assets in Mica, Montney, Alberta Deep Basin, and Germany. Achieved cost benchmark for Montney wells at $8.5M per well.
• Successfully closed large production acquisition and divested North American oil-weighted assets, streamlining portfolio towards global gas producer.
• Achieved Scope 1 emission reduction target 1 year ahead of plan, well positioned for 2030 targets.

Vermilion Energy's Q2 2025 production averaged 136,000 BOEs per day, a 32% increase from the prior quarter. They generated $260 million of fund flows from operations and $144 million of free cash flow in Q2 after deducting E&D capital expenditures. Currently, the production base is approximately 120,000 BOEs per day, with 70% weighted to natural gas and over 90% from global gas assets. Montney production averaged approximately 15,000 BOEs per day in Q2. Production from the 2 most recent Montney pads was in line with expectations, with drilling completions, equipment tie-in costs at approximately $8.5 million per well for the 2 most recent pads, a reduction from prior targets. In Germany, 2 oil wells were drilled, completed, and brought on production, and the Osterheide deep gas well averaged ~1,100 BOEs per day in Q2.

• Q3 production expected to average between 117,000 to 120,000 BOEs per day.
• Full year production guidance 117,000 to 122,000 BOEs per day and capital guidance $630 million to $660 million remain unchanged, with flexibility to decrease spending if necessary.
• Expect to end 2025 with approximately $1.3 billion of net debt, a decrease from Q1.
• Over 50% of 2025 corporate production hedged, over 40% for 2026; well protected during weak AECO pricing with hedges.
• Focus on key growth assets: Montney to hit 28,000 BOEs per day by 2028, Deep Basin on optimizing development, Germany to grow production to over 10,000 BOEs per day.

• Commodity price volatility, as the company relies on hedge book but market fluctuations can impact results.
• Risks associated with asset divestments, including potential delays or lower proceeds than expected.
• Operational risks related to achieving cost benchmarks and production targets in various regions.

Q: Greg Pardy asked about streamlining the portfolio and shareholder returns.

A: Anthony Hatcher and Lars Glemser responded, mentioning continuing to focus on streamlining to improve capital efficiency and cost structure, with shareholder returns at 40% of excess free cash flow, prioritizing share buybacks over dividends for now.

Q: Menno Hulshof asked about Westbrick synergies breakdown and European acquisition potential.

A: Randy McQuade and Anthony Hatcher explained the $200M NPV synergies from development, operational reorganization, reduced costs, etc., and discussed European acquisition opportunities, confident in funding due to deleveraging and asset profile.

Q: Chris Worley asked about Q3 CapEx deferrals.

A: Lars Glemser responded, explaining Q2 lower spend due to seasonality and spring breakup in Western Canada, on track to spend lower end of $630M-$660M guidance, deleveraging with disposition proceeds and capital deferrals.

Q: Kyle Preston asked about Q2 corporate realized gas price premium relative to AECO.

A: Lars Glemser explained the blend of European and Canadian gas production, with European gas prices highly correlated to global LNG prices, and Canadian gas well weighted with liquids.