Vermilion Sees Red in Q1
Canadian Vermilion Energy said April 28 it had a net loss of C$1.32bn (US$943mn) in Q1 2020, down from net earnings of C$39.55mn in the year ago period, as “significantly lower” commodity prices began to materialise in response to the Covid-19 pandemic and crude oil price war.
The impacts of the lower commodity prices were partially offset by gains in Vermilion’s hedging program, which has 66% of its expected net-of-royalty production hedged for Q2 2020 and 49% hedged for 2020 as a whole. About 79% of its expected European natural gas volumes are hedged for Q2, and 75% of its expected full-year European gas volumes.
“The past two months have been an extremely challenging time for people the world over as we make changes in our daily lives to arrest the Covid-19 pandemic,” CEO Anthony Marino said. Vermilion’s operations, he said, have been only moderately impacted by the pandemic, with those impacts related only to reduced availability of third-party services in France.
“We are particularly proud of our field staff, which has maintained production operations in all of our business units, including jurisdictions that have been particularly hard hit with Covid-19,” Marino added.
Fund flows from operations (FFO) in Q1 2020 fell 21% from the prior quarter, to $170mn from $215.6mn. Q1 2019 FFO was $253.6mn.
Capital expenditures in Q1 increased to $233.7 from $100.6mn in the prior quarter and from $202mn in the year-ago period, as Vermilion front-loaded its spending in part to mitigate the risk of another season of post break-up weather delays.
“Given the events that have transpired over the past several weeks with respect to the Covid-19 pandemic, we believe this program will prove to be beneficial to Vermilion in several ways,” Marino said. “The timing of this program allowed us to complete most of our drilling and completion activity before physical distancing measures were necessary, minimising health risks to our employees and contractors. Furthermore, our capital program has established a significant amount of production capacity, which will benefit us throughout the year as we minimise capital expenditures for the remainder of 2020.”
In response to the global oversupply and reduced demand because of Covid-19 measures, Vermilion initially reduced its dividend by 50% in March, to C$0.115 per share, and then suspended the dividend indefinitely in April, reducing dividend outlays by C$420mn on an annualised basis. Capital expenditures for all of 2020 have been reduced by C$100mn, while other expenses have been reduced by C$35mn. Taken together, the measures will reduce 2020 cash outlays by more than C$550mn
Production during the quarter averaged 97,154 boe/day, down slightly from the prior quarter, due largely to natural decline, unplanned downtime in Australia, minor Covid-19 impacts and the timing of new well completions.