• Production: Averaged 84,173 BOE per day in Q3 2024, up 7% year-over-year on a per share basis.
• Funds from Operations: $275 million in Q3 2024, or $1.76 per share, a 19% increase over the prior quarter.
• Corporate Realized Gas Price: $6.57 per MCF in Q3 2024.
• Capital Investment: $121 million in Q3 2024.
• Free Cash Flow: $154 million in Q3 2024.
• Shareholder Returns: $59 million returned in Q3 2024, including $19 million in dividends and $40 million in share buybacks.
• Year-to-Date Shareholder Returns: $180 million or $1 per share, equivalent to 8% of current market cap.
• Share Buyback Program: 8 million shares repurchased year-to-date, reducing share count to 155 million.
• Net Debt: Reduced by $73 million to $833 million by the end of Q3 2024.
• Net Debt Trailing Fund Flow Ratio: 0.6 times, the lowest in 15 years.
• European Gas Production: Increased by over 40% in the last two years.
• 2024 Production Guidance: Narrowed to 84,000 to 85,000 BOE per day.
• 2024 Capital Budget: $600 to $625 million remains unchanged.

• Warning! GuruFocus has detected 4 Warning Sign with VET.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Vermilion Energy Inc (NYSE:VET) reported a 19% increase in funds from operations over the prior quarter, driven by stronger European gas prices.
• The company successfully reduced its net debt by $73 million, achieving the lowest net debt trailing fund flow ratio in 15 years.
• Vermilion Energy Inc (NYSE:VET) has a diversified portfolio that provides exposure to premium-priced European gas, contributing to stable and higher cash flows.
• The company has returned $180 million to shareholders year-to-date, equivalent to 8% of its current market cap, through dividends and share buybacks.
• Vermilion Energy Inc (NYSE:VET) has made significant progress in its European operations, with successful exploration wells in Germany and Croatia, indicating potential for future organic growth.

Negative Points

• The company faced challenges with weak Canadian gas pricing, leading to partial shut-ins of some Canadian gas production.
• There are capacity constraints on the sales gas line from the 8 to 33 battery in British Columbia, impacting production.
• Vermilion Energy Inc (NYSE:VET) is exposed to risks associated with fluctuating European gas prices, which could impact future financial performance.
• The company's share buyback program, while impactful, has not yet been fully reflected in its share price.
• Vermilion Energy Inc (NYSE:VET) faces potential infrastructure limitations in Germany, which may require additional investment to fully capitalize on exploration successes.

Q & A Highlights

Q: Can you discuss the potential impact of the recent gas discovery in Germany and what it could mean for future developments? A: Lars Glemser, CFO, explained that the recent discovery in Germany is significant, with preliminary estimates suggesting over 100 BCF of gas in place. This discovery confirms the team's technical capabilities and could lead to follow-up locations, although further analysis is needed to determine the full potential.

Q: How are you balancing share buybacks with debt repayment, and what are your targets for net debt levels? A: Lars Glemser, CFO, stated that the company is comfortable with a 50/50 allocation of excess free cash flow to debt reduction and shareholder returns. They aim to maintain net debt between CAD 500 million to CAD 1 billion, and any significant reduction below CAD 500 million could prompt a reevaluation of their capital return strategy.

Q: What are the expectations for production from the S A 7 block in Croatia, and how is the infrastructure positioned to support this? A: Lars Glemser, CFO, mentioned that while it's early days, the S A 7 block has shown promising results with multiple discoveries. Production could potentially reach 5,000 to 8,000 BOE per day, supported by existing infrastructure and partnerships that reduce development costs.

Q: How do you view the current European gas market, and what is your hedging strategy moving forward? A: Lars Glemser, CFO, highlighted robust European gas prices, driven by supply constraints and demand factors. Vermilion is 50% hedged for 2025 and 40% for 2026, with plans to increase hedging for 2026 and 2027 to capitalize on strong price curves.

Q: What is your approach to M&A versus organic growth, given your large acreage position in Europe? A: Lars Glemser, CFO, emphasized a balanced approach, evaluating M&A opportunities against organic growth prospects. The focus is on sustainable free cash flow and long-term value, with acquisitions needing to compete with internal projects for capital allocation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.