Vermilion (TO:VET) has reported Q418 FFO (funds from operations) of C$222.3m, 6.7% ahead of consensus C$208.3m and in line with our estimate of C$222.2m. At 101.6kboed, production was 2.7% ahead of our forecasts, with FFO/share 1.1% ahead at C$1.46/share. Guidance for 2019 production of 101–106kboed (with the mid-point implying 19% y-o-y growth) and the capex budget of C$530m remain unchanged. ROCE in 2018 was 9% compared to a five-year average of 4%. Our last published valuation was C$54.5/share, based on a blend of FY19 P/CF, EV/EBIDAX and multiple of FCF plus five-year NAV growth.
2018 reserves update reflects inorganic additions
2P reserves increased y-o-y to 488.1mmboe (+63%), largely acquisition led. 2P F&D costs was C$7.8/boe resulting in an organic 2P operating recycle ratio of 4.1x relative to 2.7x in 2017. Best-estimate, development-pending contingent resources grew 36% to 240mmboe and prospective resource was up 5% to 161mmboe.
Strong Q4 production performance
Vermilion saw a material q-o-q production increase in Q418 from a number of European geographies including Netherlands (+17%), Germany (+7%), Central and Eastern Europe (+145% including a full quarter of Hungary production). Canadian production grew 6% q-o-q backed by strong performance from southeast Saskatchewan and Alberta and the US grew 19% q-o-q on inclusion of a full quarter of the PRB acquisition. The only material decrease was seen in Australia, where production fell 11% q-o-q due to a planned maintenance shutdown. We forecast FY19 production of 101kboed, within the company 101–106kboed guidance range. Vermilion retained its CDP climate leadership level of A-, ranking it in the top 5% of oil and gas companies globally on this metric.
Valuation: Blended C$54.5/share, 8.3% dividend yield
We will be updating forecasts on the back of today’s results announcement and marking to market for year-to-date commodity prices. Our last published valuation of C$54.5/share includes sensitivities to key commodity prices. We estimate that maintenance capex, growth capex and dividend are covered at current commodity prices.
Business description
Vermilion Energy is an international E&P with assets in Europe, North America and Australia. Management expects FY19 production to average 101–106kboed after incorporating the acquisition of Spartan.