VET

• Financial Performance

  • Q2 2026 generated $231 million in fund flows from operations, with $110 million in E&D capital expenditures, resulting in $120+ million in free cash flow
  • Net debt was reduced by $70 million in Q2 to $1.22 billion; cumulative net debt reduction of $840 million over the past five quarters, bringing the net debt to trailing four-quarter fund flows from operations ratio to 1.3x
  • Unit interest expense declined ~35% year-over-year, with the company on track to cut full-year 2026 interest expense by $30 million compared to 2025
  • A $117 million net hedging gain was recognized in Q2: a $57 million realized loss was more than offset by $174 million in unrealized mark-to-market gains
  • $26 million was returned to shareholders in Q2: $21 million via dividends and $5 million via share repurchases

• Operational Progress

  • Q2 2026 average production hit 125,800 BOE per day, exceeding the top end of the prior guidance range, and performance is trending ahead of the 5-year plan outlined at the December 2025 Investor Day
  • Record output was achieved at Mica and Montney, with strong execution in the Deep Basin; Australia production successfully restarted post-cyclones
  • In Germany, the full-field acquisition closed after quarter-end, adding production and critical infrastructure, and the deep gas exploration program is advancing
  • The NCIB share repurchase program was renewed through July 2027

• Capital Allocation Update

  • Management increased the shareholder return target to 40% to 60% of excess free cash flow, up from the prior fixed 40% target, reflecting strong deleveraging progress and improved cash flow visibility
  • The capital allocation framework retains a base dividend plus ongoing share repurchases; the pace of share buybacks is expected to increase with the higher return target
  • The 5-year plan targets reaching $1 billion net debt, with excess free cash flow projected to hit $1.7 billion over the 5-year period at $70 oil and $13 TTF gas prices

• Full-year 2026 production guidance was raised to 121,000 to 123,000 BOE per day, up from the prior range, while the E&D capital budget is maintained at $600 to $630 million
• Q3 2026 production is expected to average 116,000 to 118,000 BOE per day, reflecting planned maintenance across Canada, Germany, and Australia, which aligns with prior budget assumptions
• Q4 2026 production is forecast to reach ~122,000 BOE per day, as European gas production returns to first half 2026 levels
• The company expects full-year 2026 operating expenses and capital expenditures to remain within stated guidance ranges, with both cost categories weighted to the second half of the year
• Management is leaning toward approving drilling in Australia in 2027, which would push 2027 E&D capital spending to ~$700 million, before returning to the $600 to $630 million range in subsequent years as large infrastructure projects are completed

1. North America (Canada): Canadian production averaged 99,605 BOE per day in Q2 2026, including record production of 18,000 BOE per day at the Mica asset in the Montney. The recent 6-well BC pad achieved an IP90 of over 950 BOE per day per well, and operations are shifting toward liquids-rich opportunities in the Deep Basin's Rock Creek, Knighton, and Ellerslie plays. Cumulative free cash flow from the Osterhag well stands at $43 million since startup. This segment contributes ~79% of total Q2 production.
2. Europe: The German deep gas exploration program is targeting 10,000 BOE per day by 2030. A recently closed full-field acquisition added ~1,000 BOE per day of production, 85% of which is natural gas, plus ownership of key infrastructure around the Osterhag well. Preparations are underway for 2026 H2 drilling in the Netherlands, with planned maintenance and workovers completed in Q2. This segment contributes ~8% of total Q2 production.
3. Australia: Production restarted after back-to-back cyclones that impacted output earlier in 2026. The cyclone-related production impact was more than offset by strong year-to-date performance across other segments. This segment contributes ~13% of total Q2 production, resulting in overall Q2 production of 125,800 BOE per day company-wide.

• Exploration drilling in Germany carries inherent geological risk of dry holes, although management has mitigated this risk through technical preparation and farm-down agreements
• Commodity price volatility impacts free cash flow generation and capital allocation decisions; reduced hedging volumes in H2 2026 increase exposure to commodity price swings
• Permitting timelines for new drilling and infrastructure projects in Europe can create delays for deep gas development and debottlenecking plans
• Weather-related disruptions such as the back-to-back cyclones in Australia earlier in 2026 can impact near-term production

Q: Beyond the planned Q3 2026 turnarounds, what major operational downtime should be expected through mid-2027, and what is the expected 2026 year-end production exit rate? / A: Management states the only major planned downtime is the already announced Q3 2026 maintenance. After completing turnarounds, the company expects to exit 2026 at the higher end of the Q4 guidance range of ~122,000 BOE per day, which creates a strong operational foundation for 2027. (189 characters)

Q: How does Vermilion mitigate risk for the two planned 2027 German deep gas exploration wells, and what is the maximum out-of-pocket cost for a dry hole? / A: Risk is mitigated by decades of regional geological experience, drilling in a proven gas fairway, and extensive pre-drill seismic reprocessing. For the all-in success case, total well cost is ~$50 million, while the maximum out-of-pocket cost for a dry hole is less than $15 million. Additional commercial risk mitigation is available via farm-down partnerships. (256 characters)

Q: Where are the next two German Rottliegen exploration wells located, and what is the timeline for debottlenecking infrastructure to support higher production in the region? / A: The two wells will be drilled together on a single pad, 1-2 kilometers from the original Vissil Horse discovery well. A new 12-inch sales pipeline is already ordered, with construction starting in early 2027 and service expected by end-2027. An initial on-site gas plant will be built for the new wells, with expansion capacity if results are strong, and the pipeline will serve all three wells. (323 characters)

Q: What drove the increase in the shareholder return target to a 40%-60% range of excess free cash flow, and what determines how much the company allocates to returns within that range? / A: The target was raised due to faster-than-expected progress: $840 million in net debt reduction over 15 months, successful delivery of key post-acquisition projects, and clear visibility on deep gas resource potential in Germany. The flexible range allows for adjustments based on commodity price volatility, share price levels, and planned major projects like the 2027 Australia well, with more share repurchases expected as fundamentals improve. (344 characters)