Vermilion Energy Trust Unveils Second Quarter 2009 Results
Vermilion has reported its interim operating and unaudited financial results for the three and six month periods ended June 30, 2009.
Second Quarter Highlights
- Recorded production of 32,238 boe/d in the second quarter of 2009, slightly lower than the 32,951 boe/d recorded in the first quarter of 2009. Increases in Canada and France were offset by lower volumes in the Netherlands and Australia during the quarter.
- Generated fund flows from operations of $85.5 million ($1.10 per unit) in the second quarter of 2009 as compared to $68.4 million ($0.88 per unit) in the first quarter of 2009. The increase in fund flows from operations reflects improved oil prices, partially offset by further weakness in natural gas prices. As well, financial results also benefitted from prior period adjustments to royalties in Canada and Australia totalling approximately $5.4 million.
- Announced the acquisition of an 18.5% non-operated interest in the Corrib natural gas project in Ireland. Vermilion expects this project will increase overall production and financial results by more than 30% once production commences which is expected to occur between late 2010 and the end of 2011.
- Began preparations to drill three wells in the Netherlands in the second half of 2009.
- Total net debt increased by $4.0 million from March 31, 2009 to $236.7 million at June 30, 2009 which is equal to less than 0.7 times annualized second quarter fund flows from operations. Vermilion expects to be able to finance the recently announced Corrib acquisition using existing credit facilities.
- Verenex continues to seek consent from the Libyan National Oil Corporation (NOC) for the proposed sale of the company to CNPCI. The Chairman of the NOC has stated repeatedly that the NOC intends to exercise a pre-emptive right and purchase Verenex but this proposal remains under review by the General People’s Committee (GPC). Representatives of Verenex are in discussions with the GPC to seek an amicable solution to the current impasse on share sale approvals. Verenex has extended the outside date for the CNPCI offer to August 24, 2009, drafted an arbitration claim as a contingency and suspended drilling in Libya to conserve cash.
- Continued to reward unitholders, generating a positive total return of 10.8% in the second quarter of 2009 and a year to date return of 20.6% to the end of June 2009. Vermilion launched a new, investor-friendly website during the quarter to further improve communication with our stakeholders.
- Continued to pursue a profitability enhancement program, targeting reductions in operating and administrative costs of between $15 million and $20 million in 2009 as compared to initial budget projections. Recent internal estimates suggest that Vermilion is on track to achieve these targeted reductions.
SECOND QUARTER OUTLOOK
On June 24, 2009, Vermilion announced the acquisition of an 18.5% non-operated interest in the Corrib natural gas project in Ireland, the largest acquisition in Vermilion's history. Production from Corrib, a natural gas field that lies approximately 83 km offshore the west coast of Ireland, will increase Vermilion's volumes by approximately 9,000 boe/d once the field reaches peak production. The project, which includes both offshore and onshore pipeline segments and a significant natural gas processing facility, is in the late stages of development and is expected to commence production between late 2010 and the end of 2011.
At the date of the agreement, Vermilion paid the vendor a deposit of US $10 million and when the Corrib acquisition closed on July 30, 2009, Vermilion paid the vendor an additional US$90 million. The Trust will pay an additional US $300 million to US $135 million depending on the timing of first commercial gas production. Vermilion is also assuming its share of capital expenditures to complete the project which from the effective date of January 1, 2009 is expected to be approximately US $300 million net to Vermilion.
The 2009 capital spending program is being increased from $120 million to $235 million to accommodate the Netherlands drilling program, to take advantage of some of the drilling incentives in Alberta and to fund Vermilion's share of the Corrib project. While the increased capital program is not expected to impact production in the second half of 2009, it should be noted that stronger than expected volumes year to date may result in annual production at the high end of current guidance figures of between 30,000 boe/d and 31,000 boe/d. We continue to expect natural declines to soften production in the second half of 2009.
Vermilion's Canadian development programs will focus on well workovers and recompletions of multiple-zone, tight gas reservoirs in the Drayton Valley region of Alberta that continue to provide economic returns. In certain situations, Vermilion intends to capitalize on some of Alberta's drilling incentives. Vermilion's response to these incentives will be muted due to the relatively short-term nature of these incentive programs and uncertainty with regards to the strength of future natural gas prices. Vermilion continues to generate significant numbers of drilling prospects and resource optimization opportunities to have in place when natural gas markets improve.
In France, Vermilion is targeting workover and recompletion opportunities as well as the advancement of a potential enhanced oil recovery pilot. The current plan is to develop a pilot flood for the Chaunoy Field in the Paris Basin by 2010. Vermilion expects to make a firm decision on the pilot by the end of 2009.
In the Netherlands, Vermilion has opted to go ahead with the drilling of three wells in the second half of 2009. If successful, only one of these wells would be tied in by year-end 2009, while the remaining two will require new pipeline connections and approved production permits. Accordingly production from these two wells, if successful, is not expected until the second half of 2010.
In Australia, planning is ongoing for the next stage of drilling in the Wandoo Field. The two wells completed in December 2008 have recently been producing at a combined, restricted rate of between 1,600 boe/d and 1,800 boe/d. Wandoo production is expected to experience normal declines of between 15% and 20% annually until further drilling proceeds.
Vermilion is reviewing the timing of its conversion from a trust model to a corporate model and the current expectation is that conversion will occur by the end of 2010. Regardless of the timing of the conversion, Vermilion plans to maintain its current business strategy including a steady distribution as a corporation. The recent acquisition of the interest in the Corrib Field will help facilitate this transition as the percentage of Vermilion's operations impacted by the SIFT tax is further reduced.
Vermilion's unique portfolio of properties and assets provides unitholders with a stable base and significant opportunities for future growth. Senior management remains highly committed to delivering meaningful returns to its investors. Management and directors remain aligned with unitholders and control 9% of the Trust.
The management and directors of Vermilion are pleased to welcome Robert (Bob) Engbloom as Vermilion's corporate secretary. Bob is a partner of the law firm Macleod Dixon LLP and has over 30 years experience, predominantly in the energy sector.
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