The $1.4 billion acquisition last year by Calgary-based Vermilion Energy Inc. of Saskatchewan-focused producer Spartan Energy Corp. appears to be paying off.
The company, which recently released fourth quarter and year-end results, said production was up by 28 per cent in 2018, to 87,270 barrels of oil equivalent per day (boepd), with fourth quarter production reaching 101,621 boepd. Its Canadian production was responsible for an average of 60,814 boepd in the fourth quarter of 2018, a record.
Although lower commodity prices and hedging losses led to reduced fund flows in the fourth quarter, which hit $222 million, down by 15 per cent from the previous quarter, fund flows for all of 2018, at $839 million represented an increase of 39 per cent from 2017 (19 per cent on a per share basis).
Net earnings rose 336 per cent, to $272 million for 2018 (up 271 per cent on a per share basis).
In a conference call on Feb. 28, CEO and president Anthony Marino spoke optimistically about the former Spartan assets, telling analysts and investors the company’s “development inventory” for the former Spartan assets continues to grow.
He said the company now plans to implement waterfloods at the properties, most of which are located in Saskatchewan. That decision has led to Vermilion increasing its inventory of drillable locations to 1,500 wells from 1,000.
“We’re quite optimistic about the waterfloods,” he said.
He said most of the company’s production, in Canada, the U.S. and Europe, comes from “advantaged locations,” with the company receiving very high prices for its European gas, while most of its Saskatchewan and U.S. production consists of light oil and its Alberta production is mostly condensate, for which there is a strong domestic market.
He said the company, which plans to allocate about $530 million this year for capital expenditures and $400 million to support its dividends, intends to maintain its dividend, since its economics are based on oil prices of $40-$50 West Texas Intermediate and continued strong European gas prices.
“We didn’t cut our dividend [last year] when oil prices were at $26 and we have no intention of cutting it with oil prices at $57,” he said.
Although the bulk of the company’s production came from Canada, where production from its southeast Saskatchewan and Alberta properties reached a record 60,814 boepd in the fourth quarter, up six per cent from the previous quarter, production from its properties in the Netherlands, Ireland and the U.S. rose in the fourth quarter and year-to-year overall, with only its Australian properties showing a decline.
Production in the U.S., where it made an acquisition last year in the Powder River Basin, reached 3,545 boepd in the fourth quarter, up 19 per cent from the prior quarter.
It remains a significant producer in France, Germany, the Netherlands and Ireland, despite its pivot to Canada.
In France it produced an average of 11,454 boepd in Q4, up single digits from 2017.
In Ireland, where it is a gas-focused producer at its Corrib natural gas project, it averaged fourth quarter production of 52 mmcf/d (8,672 boepd), an increase of one per cent from the previous quarter.
Production from its gas-focused Netherlands properties rose 17 per cent in the fourth quarter from the previous quarter, reaching 8,749 boepd. That increase was mostly due to the benefit of fourth quarter production from its Eesveen-02 well (in which it has a 60 per cent share), which it brought into production.
In Australia, meanwhile, production in the fourth quarter was down 11 per cent from the previous quarter, due primarily to a planned shutdown for maintenance. However, the company said new wells it has drilled on its properties there, which tested 8,800 barrels per day (bpd) and 7,600 bpd respectively over 36-hour and 48-hour periods, should help it boost production.
In Germany it produced 3,374 boepd, up seven per cent.
It is also a producer in Central Europe.
Vermilion received gas prices in Europe averaging as much as five to 10 times more than average Canadian gas prices.
Reserves
In 2018, the company significantly increased its reserves and resources through a combination of development and acquisition activities.
Based on the 2018 GLJ reserves report, 2P reserves increased 63 per cent from year-end 2017 to 488.1 million boe, while 1P reserves increased 69 per cent from year-end 2017 to 298.2 million boe in 2018.
In Canada, 2P reserves surged to 284.8 million boe from 139.3 million boe. 1P reserves climbed to 181.9 million boe from 81.4 million boe.
