Vermilion Energy Trust has reported interim operating and unaudited financial results for the three and six month periods ended June 30, 2008.
Second Quarter Highlights:
- Recorded production of 33,743 boe/d in the second quarter of 2008 as compared to 33,072 boe/d in the first quarter of 2008. The majority of the gain was related to Australian production, which had been reduced by normal seasonal cyclone related and planned shutdowns in the first quarter. Canadian production volumes were also slightly higher resulting from well completion and workover activity in the second quarter. France production was lower due to normal declines and a delayed start to planned workover activity.
- Generated record fund flows from operations of $190.3 million ($2.50 per unit) in the second quarter of 2008 compared to $119.4 million ($1.59 per unit) in the first quarter of 2008. Commodity price increases, combined with higher production were the primary drivers, while sales from oil inventory near the end of the quarter accounted for approximately $20 million in additional fund flows from operations. Second quarter 2008 fund flows from operations were more than double the level recorded in the second quarter of 2007, driven by stronger commodity prices and a 9% year over year increase in production.
- Vermilion distributed $0.57 per unit in the quarter. Distributions declared were equivalent to 21% of fund flows from operations (17%, net of contributions from Vermilion's Distribution Reinvestment Plan or "DRIP") representing the lowest cash payout ratio in its peer group of oil and gas income trusts. Since converting to a trust in January 2003, Vermilion has distributed more than 95% of the initial unit price at the time of conversion.
- Vermilion continued an ongoing workover and recompletion program in Canada. Vermilion also expanded its natural gas handling capacity in the Drayton Valley area to provide for future drilling and third party processing demands.
- Reduced net debt by approximately $112 million from $397 million at March 31, 2008 to $285 million at June 30, 2008 which is equivalent to approximately 0.4 times annualized second quarter 2008 fund flows from operations.
- Total payout including net distributions, capital expenditures, reclamation fund contributions and asset retirement costs incurred was 34% of fund flows from operations in the second quarter of 2008 compared to 67% in the second quarter of 2007. Historically, Vermilion has maintained a total payout less than or equal to fund flows from operations. Given the strong commodity price environment, the Trust is generating fund flows from operations that exceed the requirements needed to sustain its business model. Accordingly, Vermilion has suspended the DRIP until further notice. The DRIP, designed to provide investors with an incentive to receive additional units in lieu of distributions, was resulting in unnecessary dilution to existing unitholders.
- On Tuesday, August 5, 2008, Verenex Energy Inc, in which Vermilion holds a 42.4% equity interest, released the results of a third party resource assessment of contingent and prospective oil and gas resources in Verenex's Libyan concession, confirming the establishment of a world class resource base in Area 47. In summary, the aggregate estimate of gross contingent resources and risked mean estimate of gross prospective resources is approximately 1.6 billion barrels of oil equivalent.