EX-99.3 4 tm206498d1_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

Disclaimer

 

Certain statements included or incorporated by reference in this document may constitute forward-looking statements or financial outlooks under applicable securities legislation. Such forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook. Forward looking statements or information in this document may include, but are not limited to: capital expenditures and Vermilion’s ability to fund such expenditures; Vermilion’s additional debt capacity providing it with additional working capital; the flexibility of Vermilion’s capital program and operations; business strategies and objectives; operational and financial performance; estimated volumes of reserves and resources; petroleum and natural gas sales; future production levels and the timing thereof, including Vermilion’s 2020 guidance, and rates of average annual production growth; the effect of changes in crude oil and natural gas prices, changes in exchange rates and significant declines in production or sales volumes due to unforeseen circumstances; the effect of possible changes in critical accounting estimates; statements regarding the growth and size of Vermilion’s future project inventory, and the wells expected to be drilled in 2020; exploration and development plans and the timing thereof; Vermilion’s ability to reduce its debt, including its ability to redeem senior unsecured notes prior to maturity; statements regarding Vermilion’s hedging program, its plans to add to its hedging positions, and the anticipated impact of Vermilion’s hedging program on project economics and free cash flows; the potential financial impact of climate-related risks; acquisition and disposition plans and the timing thereof; operating and other expenses, including the payment and amount of future dividends; royalty and income tax rates and Vermilion’s expectations regarding future taxes and taxability; and the timing of regulatory proceedings and approvals.

 

Such forward-looking statements or information are based on a number of assumptions, all or any of which may prove to be incorrect. In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of Vermilion to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally; the ability of Vermilion to market crude oil, natural gas liquids, and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction and expansion and the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of Vermilion to obtain financing on acceptable terms; foreign currency exchange rates and interest rates; future crude oil, natural gas liquids, and natural gas prices; and management’s expectations relating to the timing and results of exploration and development activities.

 

Although Vermilion believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Vermilion can give no assurance that such expectations will prove to be correct. Financial outlooks are provided for the purpose of understanding Vermilion’s financial position and business objectives, and the information may not be appropriate for other purposes. Forward-looking statements or information are based on current expectations, estimates, and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Vermilion and described in the forward-looking statements or information. These risks and uncertainties include, but are not limited to: the ability of management to execute its business plan; the risks of the oil and gas industry, both domestically and internationally, such as operational risks in exploring for, developing and producing crude oil, natural gas liquids, and natural gas; risks and uncertainties involving geology of crude oil, natural gas liquids, and natural gas deposits; risks inherent in Vermilion's marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life and estimates of resources and associated expenditures; the uncertainty of estimates and projections relating to production and associated expenditures; potential delays or changes in plans with respect to exploration or development projects; Vermilion's ability to enter into or renew leases on acceptable terms; fluctuations in crude oil, natural gas liquids, and natural gas prices, foreign currency exchange rates and interest rates; health, safety, and environmental risks; uncertainties as to the availability and cost of financing; the ability of Vermilion to add production and reserves through exploration and development activities; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; uncertainty in amounts and timing of royalty payments; risks associated with existing and potential future law suits and regulatory actions against Vermilion; and other risks and uncertainties described elsewhere in this document or in Vermilion's other filings with Canadian securities regulatory authorities.

 

The forward-looking statements or information contained in this document are made as of the date hereof and Vermilion undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events, or otherwise, unless required by applicable securities laws.

 

All crude oil and natural gas reserve and resource information contained in this document has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook. Reserves estimates have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability of funding required for such development. The actual crude oil and natural gas reserves and future production will be greater than or less than the estimates provided in this document.

 

Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel of oil equivalent. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

 

Financial data contained within this document are reported in Canadian dollars unless otherwise stated.

 

Vermilion Energy Inc. ■  Page 1 ■  2019 Annual Report

 

 

Abbreviations

 

$M thousand dollars
$MM million dollars
AECO the daily average benchmark price for natural gas at the AECO ‘C’ hub in Alberta
bbl(s) barrel(s)
bbls/d barrels per day
boe barrel of oil equivalent, including: crude oil, condensate, natural gas liquids, and natural gas (converted on the basis of one boe for six mcf of natural gas)
boe/d barrel of oil equivalent per day
GJ gigajoules
LSB light sour blend crude oil reference price
mbbls thousand barrels
mcf thousand cubic feet
mmcf/d million cubic feet per day
NBP the reference price paid for natural gas in the United Kingdom at the National Balancing Point Virtual Trading Point. 
NGLs natural gas liquids, which includes butane, propane, and ethane
PRRT Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia
tCO2e tonnes of carbon dioxide equivalent
TTF the price for natural gas in the Netherlands, quoted in megawatt hours of natural gas, at the Title Transfer Facility Virtual Trading Point
WTI West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma

 

Vermilion Energy Inc. ■  Page 2 ■  2019 Annual Report

 

 

Management's Report to Shareholders

 

Management's Responsibility for Financial Statements

 

The accompanying consolidated financial statements of Vermilion Energy Inc. are the responsibility of management and have been approved by the Board of Directors of Vermilion Energy Inc. The consolidated financial statements have been prepared in accordance with the accounting policies detailed in the notes to the consolidated financial statements and are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Where necessary, management has made informed judgments and estimates of transactions that were not yet completed at the balance sheet date. Financial information throughout the Annual Report is consistent with the consolidated financial statements.

 

Management ensures the integrity of the consolidated financial statements by maintaining high-quality systems of internal control. Procedures and policies are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded, and that the financial records are reliable for preparation of the consolidated financial statements. Deloitte LLP, Vermilion’s Independent Registered Public Accounting Firm, have conducted an audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and have provided their report.

 

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal control. The Board carries out this responsibility principally through the Audit Committee, which is appointed by the Board and is comprised entirely of independent Directors. The Committee meets periodically with management and Deloitte LLP to satisfy itself that each party is properly discharging its responsibilities and to review the consolidated financial statements, Management’s Discussion and Analysis and the Report of the Independent Registered Public Accounting Firm before they are presented to the Board of Directors.

 

Management's Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Management, under the supervision and with the participation of the principal executive officer and principle financial officer, conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has assessed the effectiveness of Vermilion’s internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the US Securities Exchange Act of 1934 and as defined in Canada by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. Management concluded that Vermilion’s internal control over financial reporting was effective as of December 31, 2019.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation.

 

The effectiveness of Vermilion’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, the Company’s Independent Registered Public Accounting Firm, who also audited the Company’s consolidated financial statements for the year ended December 31, 2019.

 

(“Anthony Marino”) (“Lars Glemser”)
   
Anthony Marino Lars Glemser
President & Chief Executive Officer Vice President & Chief Financial Officer
March 5, 2020  

 

Vermilion Energy Inc. ■  Page 3 ■  2019 Annual Report

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of Vermilion Energy Inc.:

 

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Vermilion Energy Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated March 5, 2020, expressed an unqualified opinion on those financial statements.

 

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report to Shareholders. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte LLP  
   
Chartered Professional Accountants  
Calgary, Canada  
March 5, 2020  

 

Vermilion Energy Inc. ■  Page 4 ■  2019 Annual Report

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of Vermilion Energy Inc.:

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Vermilion Energy Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of net earnings and comprehensive (loss) income, consolidated statements of cash flows, and consolidated statements of changes in shareholders’ equity for the years then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

 

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Deferred Taxes - Refer to Notes 2 and 11 to the Financial Statements

 

Critical Audit Matter Description

 

The Company recognizes deferred income taxes for differences between the financial statement and tax basis of assets and liabilities at enacted or substantively enacted statutory tax rates that are expected to be in effect when the temporary differences are expected to reverse. Deferred income tax assets are reduced to the amounts expected to be realized based on forecasts of future taxable profits, specifically forecasts of future revenue (future commodity price forecasts and estimates of reserves). The Company recorded a deferred income tax asset for the Canada and Ireland segments primarily arising from past taxable losses in these jurisdictions.

 

In order to determine whether it is probable that the deferred income tax assets in the Canada and Ireland segments will be realized, management makes assumptions related to the forecasts of future taxable income, specifically forecasts of future revenue (future commodity price forecasts and estimates of reserves). The Company’s management engages an expert, an independent engineering firm (“management’s expert”), to determine the estimates of reserves. As such, auditing the probability of the deferred income tax assets being realized and management’s future commodity price forecasts and estimates of reserves involved a high degree of auditor judgement as the estimations made by management contain significant measurement uncertainty. This resulted in an increased extent of audit effort, which included the need to involve specialists.

 

Vermilion Energy Inc. ■  Page 5 ■  2019 Annual Report

 

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures related to assessing the probability of the deferred income tax assets being realized and management’s forecasts of taxable profit, specifically forecasts of future revenue (future commodity price forecasts and estimates of reserves) to evaluate the deferred income tax assets in the Canada and Ireland segments included the following, among others:

 

•Evaluated the effectiveness of relevant controls, including those over the determination of the forecasts of future revenue.
•Evaluated management’s ability to accurately forecast future revenue by comparing management’s assumptions to historical data and available market trends.
•Evaluated the reasonableness of management’s forecasts of future revenue by:
◦Evaluating whether management’s estimates of future commodity price forecasts and estimates of reserves were consistent with the requirements of IAS 12 relating to the probability of forecasted future revenue and the length of the forecast period.
◦Evaluating the experience, qualifications and objectivity of management’s expert.
◦Performing analytical procedures on the estimates of reserves developed by management’s expert.
•With the assistance of fair value specialists, evaluated the future commodity price forecasts used in the estimate of future cash flow by:
◦Comparing the forecasts prepared by management’s expert to third party forecasts.
◦Comparing the differential between the index commodity prices and the future commodity prices to actual historical results.
•With the assistance of an income tax specialist, evaluated the probability of the deferred tax asset being realized.

 

/s/ Deloitte LLP  
   
Chartered Professional Accountants  
Calgary, Canada  
March 5, 2020  

 

We have served as the Company's auditor since 2000.

 

Vermilion Energy Inc. ■  Page 6 ■  2019 Annual Report

 

 

 

Consolidated Financial Statements

Consolidated Balance Sheet

thousands of Canadian dollars

 

  Note   December 31, 2019     December 31, 2018  
Assets              
Current              
Cash and cash equivalents 19   29,028     26,809  
Accounts receivable     211,409     260,322  
Crude oil inventory     29,389     27,751  
Derivative instruments 9   55,645     95,667  
Prepaid expenses     22,210     19,328  
Total current assets     347,681     429,877  
               
Derivative instruments 9   20,127     1,215  
Deferred taxes 11   196,543     219,411  
Exploration and evaluation assets 7   286,149     303,295  
Capital assets 6   5,015,620     5,316,873  
Total assets     5,866,120     6,270,671  
               
Liabilities              
Current              
Accounts payable and accrued liabilities     312,442     449,651  
Dividends payable 13   35,947     35,122  
Derivative instruments 9   62,405     41,016  
Income taxes payable     5,416     37,410  
Total current liabilities     416,210     563,199  
               
Derivative instruments 9   24,358     17,527  
Long-term debt 12   1,924,665     1,796,207  
Lease obligations 10   93,072     108,189  
Asset retirement obligations 8   618,201     650,164  
Deferred taxes 11   336,309     318,134  
Total liabilities     3,412,815     3,453,420  
               
Shareholders' Equity              
Shareholders' capital 13   4,119,031     4,008,828  
Contributed surplus     75,735     78,478  
Accumulated other comprehensive income     49,578     118,182  
Deficit     (1,791,039 )   (1,388,237 )
Total shareholders' equity     2,453,305     2,817,251  
Total liabilities and shareholders' equity     5,866,120     6,270,671  

 

Approved by the Board

 

 

(Signed “Catherine L. Williams”)   (Signed “Anthony Marino”)
     
Catherine L. Williams, Director   Anthony Marino, Director

 

Vermilion Energy Inc. ■  Page 7 ■  2019 Annual Report

 

 

Consolidated Statements of Net Earnings and Comprehensive (Loss) Income

thousands of Canadian dollars, except share and per share amounts

 

      Year Ended  
  Note   Dec 31, 2019     Dec 31, 2018  
Revenue              
Petroleum and natural gas sales     1,689,863     1,678,117  
Royalties     (163,666 )    (152,167 ) 
Sales of purchased commodities     221,274     —  
Petroleum and natural gas revenue     1,747,471     1,525,950  
               
Expenses              
Purchased commodities     221,274     —  
Operating 19   440,078     357,014  
Transportation     72,446     51,887  
Equity based compensation 15   64,233     60,746  
(Gain) loss on derivative instruments 9   (26,792 )    1,932  
Interest expense     81,377     72,759  
General and administration 19   58,976     51,929  
Foreign exchange (gain) loss     (52,271 )    63,000  
Other income     (6,875 )    (82 ) 
Accretion 8   32,667     31,219  
Depletion and depreciation 6, 7   675,177     609,056  
Impairment 6   46,056     —  
Gain on business combination 5   —     (128,208 ) 
      1,606,346     1,171,252  
Earnings before income taxes     141,125     354,698  
               
Taxes 11            
Deferred     56,096     39,471  
Current     52,230     43,577  
      108,326     83,048  
               
Net earnings     32,799     271,650  
               
Other comprehensive (loss) income              
Currency translation adjustments     (81,042 )    46,353  
Unrealized gain on derivatives designated as cash flow hedges, net of tax 9, 12   11,295     —  
Unrealized gain on derivatives designated as net investment hedges, net of tax 9, 12   1,143     —  
Comprehensive (loss) income     (35,805 )    318,003  
               
Net earnings per share 16            
Basic     0.21     1.93  
Diluted     0.21     1.91  
               
Weighted average shares outstanding ('000s) 16            
Basic     154,736     140,619  
Diluted     156,095     142,335  

 

Vermilion Energy Inc. ■  Page 8 ■  2019 Annual Report

 

 

Consolidated Statements of Cash Flows

thousands of Canadian dollars

 

      Year Ended
  Note   Dec 31, 2019   Dec 31, 2018
Operating          
Net earnings     32,799     271,650  
Adjustments:          
Accretion 8   32,667     31,219  
Depletion and depreciation 6, 7   675,177     609,056  
Impairment 6   46,056     —  
Gain on business combinations 5   —     (128,208 )
Unrealized loss (gain) on derivative instruments 9   57,427     (109,326 )
Equity based compensation 15   64,233     60,746  
Unrealized foreign exchange (gain) loss     (57,225 )   63,243  
Unrealized other expense     825     801  
Deferred taxes 11   56,096     39,471  
Asset retirement obligations settled 8   (19,442 )   (15,765 )
Changes in non-cash operating working capital 19   (65,148 )   (6,876 )
Cash flows from operating activities     823,465     816,011  
           
Investing          
Drilling and development 6   (486,677 )   (503,842 )
Exploration and evaluation 7   (36,487 )   (14,372 )
Acquisitions 5   (38,472 )   (276,308 )
Changes in non-cash investing working capital 19   (57,072 )   55,491  
Cash flows used in investing activities     (618,708 )   (739,031 )
           
Financing          
Borrowings on the revolving credit facility 12   214,895     251,155  
Payments on lease obligations 10   (26,354 )   (18,884 )
Cash dividends 13   (391,549 )   (330,194 )
Cash flows used in financing activities     (203,008 )   (97,923 )
Foreign exchange gain on cash held in foreign currencies     470     1,191  
           
Net change in cash and cash equivalents     2,219     (19,752 )
Cash and cash equivalents, beginning of year     26,809     46,561  
Cash and cash equivalents, end of year 19   29,028     26,809  
           
Supplementary information for cash flows from operating activities          
      Interest paid     73,783     70,049  
      Income taxes paid     84,224     45,228  

 

Vermilion Energy Inc. ■  Page 9 ■  2019 Annual Report

 

 

Consolidated Statements of Changes in Shareholders' Equity

thousands of Canadian dollars

 

      Year Ended
  Note   Dec 31, 2019   Dec 31, 2018
Shareholders' capital 13        
Balance, beginning of year     4,008,828     2,650,706  
Shares issued for acquisition     —     1,234,676  
Shares issued for the Dividend Reinvestment Plan     34,937     49,051  
Vesting of equity based awards     51,108     54,057  
Equity based compensation     15,868     12,565  
Share-settled dividends on vested equity based awards     8,290     7,773  
Balance, end of year     4,119,031     4,008,828  
Contributed surplus          
Balance, beginning of year     78,478     84,354  
Equity based compensation     48,365     48,181  
Vesting of equity based awards     (51,108 )   (54,057 )
Balance, end of year     75,735     78,478  
Accumulated other comprehensive income          
Balance, beginning of year     118,182     71,829  
Currency translation adjustments     (81,042 )   46,353  
Gain on derivatives designated as cash flow hedges, net of tax 9, 12   19,659     —  
Amount reclassified from cash flow hedge reserve to net earnings, net of tax     (8,364 )   —  
Loss on derivatives designated as net investment hedges, net of tax 9, 12   (3,513 )   —  
Amount reclassified from net investment hedge reserve to net earnings, net of tax     4,656     —  
Balance, end of year     49,578     118,182  
Deficit          
Balance, beginning of year     (1,388,237 )   (1,264,003 )
Net earnings     32,799     271,650  
Dividends declared 13   (427,311 )   (388,111 )
Share-settled dividends on vested equity based awards     (8,290 )   (7,773 )
Balance, end of year     (1,791,039 )   (1,388,237 )
           
Total shareholders' equity     2,453,305     2,817,251  

 

Description of equity reserves

 

Shareholders’ capital

Represents the recognized amount for common shares when issued, net of equity issuance costs and deferred taxes.

 

Contributed surplus

Represents the recognized value of unvested equity based awards that will be settled in shares. Once vested, the value of the awards are transferred to shareholders’ capital.

 

Accumulated other comprehensive income

Represents currency translation adjustments and changes in the fair value of derivative financial instruments in designated hedging relationships.

 

Currency translation adjustments result from translating the balance sheets of subsidiaries with a foreign functional currency to Canadian dollars at period-end rates. These amounts may be reclassified to net earnings if there is a disposal or partial disposal of a subsidiary.

 

The effective portion of the change in fair value related to cash flow and net investment hedges are recognized in other comprehensive income, net of tax and reclassified to the consolidated statement of net earnings in the same period in which the transaction associated with the hedged item occurs. Upon discontinuation of hedge accounting, the reserve amounts will be reclassified to net earnings.

 

Deficit

Represents the cumulative net earnings less distributed earnings of Vermilion Energy Inc.

 

Vermilion Energy Inc. ■  Page 10 ■  2019 Annual Report

 

 

Notes to the Consolidated Financial Statements for the year ended December 31, 2019 and 2018

tabular amounts in thousands of Canadian dollars, except share and per share amounts

 

1. Basis of presentation

 

Vermilion Energy Inc. and its subsidiaries (the “Company” or “Vermilion”) are engaged in the business of petroleum and natural gas exploration, development, acquisition, and production.

 

Vermilion was incorporated in Canada and the Company’s registered office and principal place of business is located at 3500, 520, 3rd Avenue SW, Calgary, Alberta, Canada.

 

These consolidated financial statements were approved and authorized for issuance by Vermilion’s Board of Directors on March 5, 2020.

 

2. Significant accounting policies

 

Accounting framework

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

Principles of consolidation

The consolidated financial statements include the accounts of Vermilion Energy Inc. and its subsidiaries.  Vermilion’s subsidiaries include entities in each of the jurisdictions that Vermilion operates as described in Note 4 (Segmented information) including: Canada, France, Netherlands, Germany, Ireland, Australia, the United States, and Central and Eastern Europe (Hungary, Slovakia, and Croatia).  Vermilion Energy Inc. directly or indirectly through holding companies owns all of the voting securities of each material subsidiary. Transactions between Vermilion Energy Inc. and its subsidiaries have been eliminated.

 

Vermilion accounts for joint operations by recognizing the Company’s share of assets, liabilities, income, and expenses.

 

Exploration and evaluation assets

Vermilion classifies costs as exploration and evaluation (“E&E”) assets when they relate to exploring and evaluating an area for which the Company has the license or right to explore and extract resources. E&E costs may include: geological and geophysical costs; land and license acquisition costs; and costs for the drilling, completion, and testing of exploration wells.

 

E&E costs are reclassified to capital assets if the technical feasibility and commercial viability of the area can be determined. E&E assets are assessed for impairment prior to any reclassification. The technical feasibility and commercial viability of extracting the reserves is considered to be determinable when proved and probable reserves are identified.

 

Costs incurred prior to the acquisition of the legal rights to explore an area are expensed as incurred. If reserves are not found within the license area or the area is abandoned, the related E&E costs are depreciated over a period not greater than five years. If an exploration license expires prior to the commencement of exploration activities, the cost of the exploration license is written off through depreciation in the year of expiration.

 

Capital assets

Vermilion recognizes capital assets at cost less accumulated depletion, depreciation, and impairment losses. Costs include directly attributable costs incurred for the drilling, completion, and tie-in of wells and the construction of production and processing facilities.

 

When components of capital assets are replaced, disposed of, or no longer in use, they are derecognized. Gains and losses on disposal of capital assets are determined by comparing the proceeds of disposal compared to the carrying amount.

 

Vermilion Energy Inc. ■  Page 11 ■  2019 Annual Report

 

 

Depletion and depreciation

Capital assets are grouped into depletion units, which are groups of assets within a specific production area that have similar economic lives. Depletion units represent the lowest level of disaggregation for which costs are accumulated for the purposes of calculating depletion and depreciation.

 

The net carrying value of each depletion unit is depleted using the unit of production method by reference to the ratio of production in the period to the total proved and probable reserves, taking into account the future development costs necessary to bring the applicable reserves into production.

 

For the purposes of the depletion calculations, oil and gas reserves are converted to a common unit of measure on the basis of their relative energy content based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent.

 

Impairment of capital assets and exploration and evaluation assets

Depletion units are aggregated into cash generating units (“CGUs”) for impairment testing. CGUs are the lowest level for which there are identifiable cash inflows that are largely independent of cash inflows of other groups of assets. CGUs are reviewed for indicators of potential impairment at each reporting date.

 

E&E assets are tested for impairment when reclassified to capital assets or when indicators of potential impairment are identified. E&E assets are reviewed for indicators of potential impairment at each reporting date. If indicators of potential impairment are identified, E&E assets are tested for impairment as part of the CGU attributable to the jurisdiction in which the exploration area resides.

 

If an indicator of potential impairment exists, the CGU’s carrying value is compared to its recoverable amount. A CGU’s recoverable amount is the higher of its fair value less costs of disposal and its value-in-use. If the carrying amount of a CGU exceeds its recoverable amount, an impairment loss is recognized to reduce the carrying value of the CGU to its recoverable amount.

 

If an impairment loss has been recognized in a prior period, an assessment is performed at each reporting date to determine if there are indicators that the circumstances which led to the impairment loss have reversed. If the change in circumstances results in the recoverable amount being higher than the carrying value after the impairment loss, then the impairment loss (net of depletion that would otherwise have been recorded) is reversed.

 

Lease obligations and right-of-use assets

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the lease commencement date, a lease obligation is recognized at the present value of future lease payments, typically using the applicable incremental borrowing rate. A corresponding right-of-use asset is recognized at the amount of the lease obligation, adjusted for lease incentives received and initial direct costs. Vermilion does not recognize leases for short-term leases with a lease term of 12 months or less, or leases for low-value assets.

 

Payments are applied against the lease obligation and interest expense is recognized on the lease obligations using the effective interest rate method. Depreciation is recognized on the right-of-use asset over the lease term.

 

Cash and cash equivalents

Cash and cash equivalents include cash on deposit with financial institutions and guaranteed investment certificates.

 

Crude oil inventory

Crude oil inventory is valued at the lower of cost or net realizable value. The cost of crude oil inventory produced includes related operating expense, royalties, and depletion determined on a weighted-average basis.

 

Vermilion Energy Inc. ■  Page 12 ■  2019 Annual Report

 

 

Asset retirement obligations

Vermilion recognizes a provision for asset retirement obligations when an event occurs giving rise to an obligation of uncertain timing or amount. Asset retirement obligations are recognized on the consolidated balance sheet as a long-term liability with a corresponding increase to E&E or capital assets.

 

Asset retirement obligations reflect the present value of estimated future settlement costs. The discount rate used to calculate the present value is specific to the jurisdiction the obligation relates to and is reflective of current market assessment of the time value of money and risks specific to the liabilities that have not been reflected in the cash flow estimates.

 

Asset retirement obligations are remeasured at each reporting period to reflect changes in market rates and estimated future settlement costs. Asset retirement obligations are increased each reporting period to reflect the passage of time with a corresponding charge to accretion expense.

 

 

Revenue recognition

Revenue associated with the sale of crude oil and condensate, natural gas, and natural gas liquids is measured based on the consideration specified in contracts with customers.

 

Revenue from contracts with customers is recognized when or as Vermilion satisfies a performance obligation by transferring control of crude oil and condensate, natural gas, or natural gas liquids to a customer at contractually specified transfer points.  This transfer coincides with title passing to the customer and the customer taking physical possession of the commodity.  Vermilion principally satisfies its performance obligations at a point in time and the amounts of revenue recognized relating to performance obligations satisfied over time are not significant.

 

Vermilion invoices customers for delivered products monthly and payment occurs shortly thereafter. Vermilion does not have any contracts where the period between the transfer of control of the commodity to the customer and payment by the customer exceeds one year. As a result, Vermilion does not adjust its revenue transactions to reflect significant financing components.

 

Financial instruments

On initial recognition, financial instruments are measured at fair value. Measurement in subsequent periods depends on the classification of the financial instrument as described below:

 

·Fair value through profit or loss ("FVTPL"): Financial instruments under this classification include cash and cash equivalents and derivative assets and liabilities.
·Fair value through other comprehensive income ("FVTOCI"): Financial instruments under this classification include derivative assets and liabilities where hedge accounting is applied.
·Amortized cost: Financial instruments under this classification include accounts receivable, accounts payable and accrued liabilities, dividends payable, lease obligations, and long-term debt.

 

Accounts receivable are measured net of a loss allowance equal to the lifetime expected credit loss.

 

Hedge accounting

Hedge accounting is applied to financial instruments designated as hedging instruments in qualifying hedging relationships. Qualifying hedge relationships may include cash flow hedges, fair value hedges, and hedges of net investments in foreign operations. The purpose of hedge accounting is to represent the effect of Vermilion's risk management activities to manage exposures arising from specific risks that affect net earnings such as foreign currency risk.

 

In order to apply hedge accounting, the eligible hedging instrument must be highly effective in offsetting the exposure to changes in the eligible hedged item. This effectiveness is assessed at inception and at the end of each reporting period thereafter. At inception, formal designation and documentation of the hedging relationship, risk management objective and strategy is required for undertaking the hedge.

 

Vermilion Energy Inc. ■  Page 13 ■  2019 Annual Report

 

 

For cash flow and net investment hedges, gains and losses on the hedging instrument are recognized in the consolidated statement of earnings in the same period in which the transaction associated with the hedged item occurs. Where the hedging instrument is a derivative instrument, a derivative asset or liability is recognized on the balance sheet at fair value (included in "Derivative instruments") with the effective portion of the gain or loss recorded to other comprehensive income. Any gain or loss associated with the ineffective portion of the hedging relationship is recognized in the consolidated statement of net earnings as other income or expense.

 

If a hedging relationship no longer qualifies for hedge accounting, any gain or loss resulting from the discontinuation of hedge accounting is deferred in other comprehensive income until the forecasted transaction date. If the forecasted transaction is no longer expected to occur, any gain or loss resulting from the discontinuation of hedge accounting is immediately recognized in the consolidated statement of net earnings.

Equity based compensation

Equity based compensation expense results from equity-settled awards issued under Vermilion’s long-term share-based compensation plans as well as the grant date fair value of Vermilion common shares issued under the Company’s bonus and employee share savings plans.

 

Vermilion's long-term share-based compensation plans consist of the Vermilion Incentive Plan (“VIP”), the "Five-Year Compensation Arrangement", and the Deferred Share Unit Plan ("DSU"). Equity-settled awards issued under the VIP vest over a period of one to three years, awards issued under the Five-Year Compensation Arrangement vest in the fifth year following the grant date, and awards issued under the DSU vest immediately upon granting. Awards issued under the VIP and Five-Year Compensation Arrangement plans are adjusted upon vesting by a performance factor determined by the Company’s Board of Directors.

 

Equity based compensation expense for equity-settled plans is recognized over the vesting period with a corresponding adjustment to contributed surplus. The expense recognized is based on the grant date fair value of the awards, an estimate of the performance factor that will be achieved (if applicable), and an estimate of forfeiture rates based on historical vesting data. Dividends notionally accrue to the VIP and Five-Year Compensation Arrangement and are excluded in the determination of grant date fair values. When the awards are converted to Vermilion common shares, the amount recognized in contributed surplus is reclassified to shareholders’ capital.

 

The grant date fair value of awards or Vermilion common shares issued is determined as the closing price of Vermilion’s common shares on the Toronto Stock Exchange on the grant date.

 

Per share amounts

Basic net earnings per share is calculated by dividing net earnings by the weighted-average number of shares outstanding during the period.

 

Diluted net earnings per share is calculated by dividing net earnings by the diluted weighted-average number of shares outstanding during the period. The diluted weighted-average number of shares outstanding is the sum of the basic weighted-average number of shares outstanding and (to the extent inclusion reduces diluted net earnings per share) the number of shares issuable for equity-settled awards determined using the treasury stock method. The treasury stock method assumes that the unrecognized equity based compensation expense are deemed proceeds used to repurchase Vermilion common shares at the average market price during the period.

 

Vermilion Energy Inc. ■  Page 14 ■  2019 Annual Report

 

 

Foreign currency translation

Vermilion Energy Inc.’s functional and presentation currency is the Canadian dollar. Vermilion has subsidiaries that transact and operate in countries other than Canada and have functional currencies other than the Canadian dollar.

 

Foreign currency translation includes the translation of foreign currency transactions and the translation of foreign operations.

 

Foreign currency transaction translation occurs when translating transactions and balances in foreign currencies to the applicable functional currency of Vermilion Energy Inc. and its subsidiaries. Gains and losses from foreign currency transactions are recorded as foreign exchange gains or losses in the statement of net earnings. Foreign currency transaction translation occurs as follows:

 

·Income and expenses are translated at the prevailing rates on the date of the transaction.
·Non-monetary assets or liabilities are carried at the prevailing rates on the date of the transaction.
·Monetary items, including intercompany loans that are not deemed to represent net investments in a foreign subsidiary, are translated at the prevailing rates at the balance sheet date.

 

Foreign operation translation occurs when translating the financial statements of non-Canadian functional currency subsidiaries to the Canadian dollar and when translating intercompany loans that are deemed to represent net investments in a foreign subsidiary. Gains and losses from foreign operation translations are recorded as currency translation adjustments. Foreign operation translation occurs as follows:

 

·Income and expenses are translated at the average exchange rates for the period.
·Assets and liabilities are translated at the prevailing rates on the balance sheet date.

 

Income taxes

Deferred tax assets and liabilities are calculated using the balance sheet method. Deferred tax assets and liabilities are recognized for the estimated effect of any temporary differences between the amounts recognized on Vermilion’s consolidated balance sheet and the respective tax basis. This calculation uses enacted or substantively enacted tax rates that are expected to be in effect when the temporary differences are expected to reverse. The effect of a change in tax rates on deferred taxes is recognized in the period the related legislation is substantively enacted.

 

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realized.

 

Business combinations

Acquisitions of corporations or groups of assets are accounted for as business combinations using the acquisition method if the acquired assets constitute a business. Under the acquisition method, assets acquired and liabilities assumed in a business combination (with the exception of deferred tax assets and liabilities) are measured at their fair value. Deferred tax assets or liabilities arising from the assets acquired and liabilities assumed are measured in accordance with the policies described in "Income taxes" above.

 

If applicable, the excess or deficiency of the fair value of net assets acquired compared to consideration paid is recognized as a gain on business combination or as goodwill on the consolidated balance sheet. Acquisition-related costs incurred to effect a business combination are expensed in the period incurred.

 

As part of the assessment to determine if the acquisition constitutes a business, Vermilion may elect to apply the concentration test on a transaction by transaction basis. The test is met if substantially all of the fair value related to the gross assets acquired is concentrated in a single identifiable asset (or group of similar assets) resulting in the acquisition not being deemed a business and recorded as an asset acquisition.

 

Segmented information

Vermilion has a decentralized business unit structure designed to manage assets in each country the Company operates. Each of Vermilion's operating segments derives its revenues solely from the production and sale of petroleum and natural gas.

 

Vermilion Energy Inc. ■  Page 15 ■  2019 Annual Report

 

 

Vermilion’s Corporate segment aggregates costs incurred at the Company’s Corporate head office located in Calgary, Alberta, Canada as well as costs incurred relating to Vermilion’s exploration and production activities in Hungary, Slovakia, and Croatia (Central and Eastern Europe). These operating segments have similar economic characteristics as they do not currently generate material revenue.

 

Vermilion’s chief operating decision maker regularly reviews fund flows from operations generated by each of Vermilion’s operating segments. Fund flows from operations is a measure of profit or loss that provides the chief operating decision maker with the ability to assess the profitability of each operating segment and, correspondingly, the ability of each operating segment to fund its share of dividends, asset retirement obligations, and capital investments.

 

Management judgments and estimation uncertainty

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the reported amount of assets, liabilities, income, and expenses. Actual results could differ significantly from these estimates. Key areas where management has made judgments, estimates, and assumptions are described below.

 

The measurement of the fair value of capital assets acquired in a business combination and the determination of the recoverable amount of cash generating units:

·Calculating the fair value of capital assets acquired in a business combination and the recoverable amount of cash generating units (in the assessment of impairments or reversals of previous impairments if indicators of impairment or impairment reversal are identified) are based on estimated future commodity prices, discount rates and estimated reserves and resources. Reserve and resource estimates are based on: engineering data, estimated future commodity prices, expected future rates of production, and assumptions regarding the timing and amount of future expenditures. Changes in these estimates and assumptions can directly impact the calculated fair value of capital assets acquired (and thus the resulting goodwill or gain on business combination) and the recoverable amount of a CGU (and thus the resulting impairment loss or recovery).
·In addition, the recoverable amount of a CGU is impacted by the composition of CGUs, which are subject to management’s judgment of the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. The factors used by Vermilion to determine CGUs vary by jurisdiction due to their unique operating and geographic conditions. In general, Vermilion will assess the following factors: geographic proximity of the assets within a group to one another, geographic proximity of the group of assets to other groups of assets, homogeneity of the production from the group of assets and the sharing of infrastructure used to process and/or transport production. Changes in these judgments can directly impact the calculated recoverable amount of a CGU (and thus the resulting impairment loss or recovery).

 

The measurement of the carrying value of asset retirement obligations on the balance sheet, including the fair value and subsequent carrying value of asset retirement obligations assumed in a business combination:

·Asset retirement obligations are based on judgments regarding regulatory requirements, estimates of future costs, assumptions on the expected timing of expenditures, and estimates of the underlying risk inherent to the obligation. The carrying balance of asset retirement obligations and accretion expense may differ due to changes in: laws and regulations, technology, the expected timing of expenditures, and market conditions affecting the discount rate applied.

 

The recognition and measurement of deferred tax assets and liabilities:

·Tax interpretations, regulations, and legislation in the various jurisdictions in which Vermilion and its subsidiaries operate are subject to change and interpretation. Changes in laws and interpretations can affect the timing of the reversal of temporary tax differences, the tax rates in effect when such differences reverse and Vermilion’s ability to use tax losses and other tax pools in the future. The Company’s income tax filings are subject to audit by taxation authorities in numerous jurisdictions and the results of such audits may increase or decrease the tax liability. The determination of tax amounts recognized in the consolidated financial statements are based on management’s assessment of the tax positions, which includes consideration of their technical merits, communications with tax authorities and management’s view of the most likely outcome.
·The extent to which deferred tax assets are recognized are based on estimates of future profitability. These estimates are based on estimated future commodity prices and estimates of reserves. Judgments, estimates, and assumptions inherent in reserve estimates are described above.

 

Vermilion Energy Inc. ■  Page 16 ■  2019 Annual Report

 

 

The measurement of lease obligations and corresponding right-of-use assets:

·The measurement of lease obligations are subject to management's judgments of the applicable incremental borrowing rate and the expected lease term. The carrying balance of the right-of-use assets, lease obligations, and the resulting interest and depletion and depreciation expense, may differ due to changes in the market conditions and expected lease terms. Applicable incremental borrowing rates are based on judgments of the economic environment, term, currency, and the underlying risk inherent to the asset. Lease terms are based on assumptions regarding cancellation and extension terms that allow for operational flexibility based on future market conditions.

 

 

3. Changes in accounting pronouncements

 

Definition of a Business - Amendments to IFRS 3 "Business Combinations"

Vermilion elected to early adopt the amendments to IFRS 3 "Business Combinations" effective January 1, 2019, which will be applied prospectively to acquisitions that occur on or after January 1, 2019. The amendments introduce an optional concentration test, narrow the definitions of a business and outputs, and clarify that an acquired set of activities and assets must include an input and a substantive process that together significantly contribute to the ability to create outputs. These amendments did not result in changes to Vermilion's accounting policies for applying the acquisition method.

 

Vermilion Energy Inc. ■  Page 17 ■  2019 Annual Report

 

 

 

4. Segmented information

 

Substantially all sales in the France, Netherlands, and Ireland operating segments for the years ended December 31, 2019 and 2018 were to one customer in each respective segment. In 2019, France contributed more than 10% of Vermilion's consolidated revenues. In 2018, France, Netherlands, and Ireland each contributed more than 10% of Vermilion's consolidated revenues.

 

      Year Ended December 31, 2019
($M)     Canada     France     Netherlands     Germany     Ireland     Australia     USA     Corporate     Total
Total assets     3,088,947       841,875       226,834       261,712       470,316       233,581       421,609       321,246       5,866,120  
Drilling and development     293,744       74,579       19,866       10,806       1,372       30,550       57,196       (1,436 )     486,677  
Exploration and evaluation     —       62       3,739       10,878       —       —       —       21,808       36,487  
                                                       
Crude oil and condensate sales     699,290       326,578       2,411       25,783       27       184,490       63,449       —       1,302,028  
NGL sales     33,159       —       —       —       —       —       6,499       —       39,658  
Natural gas sales     95,621       121       110,446       31,529       104,247       —       5,416       797       348,177  
Sales of purchased commodities     —       —       —       —       —       —       —       221,274       221,274  
Royalties     (94,079 )     (43,895 )     (1,469 )     (5,264 )     —       —       (18,706 )     (253 )     (163,666 )
Revenue from external customers     733,991       282,804       111,388       52,048       104,274       184,490       56,658       221,818       1,747,471  
Purchased commodities     —       —       —       —       —       —       —       (221,274 )     (221,274 )
Transportation     (41,261 )     (21,609 )     —       (5,117 )     (4,459 )     —       —       —       (72,446 )
Operating     (242,790 )     (61,281 )     (32,125 )     (24,970 )     (12,431 )     (49,810 )     (16,370 )     (301 )     (440,078 )
General and administration     (23,341 )     (15,406 )     (2,659 )     (8,452 )     (2,491 )     (4,940 )     (7,566 )     5,879       (58,976 )
PRRT     —       —       —       —       —       (25,947 )     —       —       (25,947 )
Corporate income taxes     —       (21,431 )     3,961       —       —       (8,407 )     —       (406 )     (26,283 )
Interest expense     —       —       —       —       —       —       —       (81,377 )     (81,377 )
Realized gain on derivative instruments     —       —       —       —       —       —       —       84,219       84,219  
Realized foreign exchange loss     —       —       —       —       —       —       —       (4,954 )     (4,954 )
Realized other income     —       —       —       —       —       —       —       7,700       7,700  
Fund flows from operations     426,599       163,077       80,565       13,509       84,893       95,386       32,722       11,304       908,055  
                                                       
      Year Ended December 31, 2018
($M)     Canada     France     Netherlands     Germany     Ireland     Australia     USA     Corporate     Total
Total assets     3,060,291       918,398       277,348       284,063       709,585       263,739       407,323       349,924       6,270,671  
Drilling and development     277,857       79,451       17,963       10,863       224       75,638       40,837       1,009       503,842  
Exploration and evaluation     —       307       (480 )     4,943       —       —       —       9,602       14,372  
                                                       
Crude oil and condensate sales     541,844       360,471       2,462       32,704       —       150,733       31,142       —       1,119,356  
NGL sales     56,554       —       —       —       —       —       4,622       —       61,176  
Natural gas sales     72,774       131       163,454       49,745       205,150       —       2,701       3,630       497,585  
Royalties     (84,696 )     (46,781 )     (3,181 )     (6,626 )     —       —       (10,070 )     (813 )     (152,167 )
Revenue from external customers     586,476       313,821       162,735       75,823       205,150       150,733       28,395       2,817       1,525,950  
Transportation     (29,912 )     (10,426 )     —       (6,420 )     (5,129 )     —       —       —       (51,887 )
Operating     (177,499 )     (54,690 )     (26,681 )     (23,048 )     (15,366 )     (53,199 )     (6,421 )     (110 )     (357,014 )
General and administration     (6,057 )     (14,170 )     (1,947 )     (7,401 )     (8,386 )     (4,918 )     (6,306 )     (2,744 )     (51,929 )
PRRT     —       —       —       —       —       (4,824 )     —       —       (4,824 )
Corporate income taxes     —       (15,084 )     (16,561 )     —       —       (6,595 )     —       (513 )     (38,753 )
Interest expense     —       —       —       —       —       —       —       (72,759 )     (72,759 )
Realized loss on derivative instruments     —       —       —       —       —       —       —       (111,258 )     (111,258 )
Realized foreign exchange gain     —       —       —       —       —       —       —       243       243  
Realized other income     —       —       —       —       —       —       —       883       883  
Fund flows from operations     373,008       219,451       117,546       38,954       176,269       81,197       15,668       (183,441 )     838,652  

 

Vermilion Energy Inc. ■  Page 18 ■  2019 Annual Report

 

 

Reconciliation of fund flows from operations to net earnings:

 

      Year Ended
      Dec 31, 2019     Dec 31, 2018
Fund flows from operations     908,055       838,652  
Accretion     (32,667 )     (31,219 )
Depletion and depreciation     (675,177 )     (609,056 )
Impairment     (46,056 )     —  
Gain on business combinations     —       128,208  
Unrealized (loss) gain on derivative instruments     (57,427 )     109,326  
Equity based compensation     (64,233 )     (60,746 )
Unrealized foreign exchange gain (loss)     57,225       (63,243 )
Unrealized other expense     (825 )     (801 )
Deferred tax     (56,096 )     (39,471 )
Net earnings     32,799       271,650  

 

5. Business combinations

 

Private Producer in Southeast Saskatchewan and Southwest Manitoba

On February 15, 2018, Vermilion acquired all of the issued and outstanding common shares of a private producer with assets in southeast Saskatchewan and southwest Manitoba. The acquisition comprised of light oil producing fields near Vermilion’s existing operations in southeast Saskatchewan. The acquisition complements Vermilion’s existing southeast Saskatchewan operations and aligns with the Company's sustainable growth-and-income model. The acquisition was funded through Vermilion’s revolving credit facility.

 

The total consideration paid and the fair value of the assets acquired and liabilities assumed at the date of acquisition are detailed in the table below:

 

      Consideration
Cash paid to vendor     53,288  
Total consideration     53,288  
       
      Allocation of consideration
Capital assets     67,549  
Deferred tax assets     26,914  
Acquired working capital     1,577  
Long-term debt     (38,300 )
Asset retirement obligations     (4,452 )
Net assets acquired     53,288  

 

For the year ended December 31, 2018, the acquisition contributed revenues of $18.7 million and net earnings of $6.7 million. Had the acquisition occurred on January 1, 2018, revenues would have increased by $2.9 million and net earnings would have increased by $1.0 million for the year ended December 31, 2018.

 

Spartan Energy Corp.

On May 28, 2018, Vermilion acquired all of the issued and outstanding common shares of Spartan Energy Corp., a publicly traded oil and gas producer with light oil producing properties in southeast Saskatchewan as well as other areas in Saskatchewan, Alberta, and Manitoba. The acquisition increased Vermilion’s position in southeast Saskatchewan and aligned with the Company's sustainable growth-and-income model.

 

Consideration consisted of the issuance of 27.9 million Vermilion common shares valued at approximately $1.2 billion (based on the closing price per Vermilion common share of $44.30 on the Toronto Stock Exchange on May 28, 2018). Acquisition-related costs of $1.3 million were incurred in the year ended December 31, 2018.

 

Vermilion Energy Inc. ■  Page 19 ■  2019 Annual Report

 

  

The total consideration paid and the fair value of the assets acquired and liabilities assumed as at the date of the acquisition are detailed in the table below:

 

      Consideration
Shares issued for acquisition     1,235,221  
Total consideration     1,235,221  
       
      Allocation of consideration
Capital assets     1,401,686  
Deferred tax assets     123,813  
Long-term debt     (150,196 )
Asset retirement obligations     (92,149 )
Lease obligations     (25,455 )
Assumed working capital deficit     (22,478 )
Net assets acquired     1,235,221  

  

For the year ended December 31, 2018, the acquisition contributed revenues of $242.1 million and net earnings of $45.1 million. Had the acquisition occurred on January 1, 2018, revenues would have increased by $182.4 million and net earnings would have increased by $35.0 million for the year ended December 31, 2018.

 

Assets in Wyoming

In August 2018, Vermilion acquired oil and gas producing assets and mineral leasehold land from a private oil company for total cash consideration of $189.0 million. The assets are located in Campbell County, Wyoming in the Powder River Basin, approximately 65 kilometres northwest of Vermilion’s existing operations. The acquired assets complement Vermilion's existing Powder River operations and align with the Company's sustainable growth-and-income model. The acquisition was funded through Vermilion’s revolving credit facility.

 

The total consideration paid and the fair value of the assets acquired and liabilities assumed at the date of acquisition are detailed in the table below:

 

      Consideration
Cash paid to vendor     189,014  
Total consideration     189,014  
       
      Allocation of consideration
Capital assets     284,333  
Deferred tax liability     (19,019 )
Asset retirement obligations     (4,821 )
Assumed working capital deficit     (2,651 )
Net assets acquired     257,842  
Gain on business combination     (68,828 )
Total net assets acquired, net of gain on business combination     189,014  

 

The gain on the business combination primarily resulted from the recognition of additional reserve value when the acquisition closed compared to the estimated value when Vermilion entered into the purchase and sale agreement and the acquisition price was determined.

 

For the year ended December 31, 2018, the acquisition contributed revenues of $11.6 million and net earnings of $0.3 million. Had the acquisition occurred on January 1, 2018, revenues would have increased by $11.1 million and net earnings would have decreased by $0.1 million for the year ended December 31, 2018.

 

Vermilion Energy Inc. ■  Page 20 ■  2019 Annual Report

 

 

 

Shell E&P Ireland Limited

 

In December 2018, Vermilion acquired all of the issued and outstanding common shares of Shell E&P Ireland Limited, along with an incremental 1.5% working interest in the Corrib Natural Gas Project ("Corrib") in Ireland from Nephin Energy Holdings Limited, a wholly owned subsidiary of Canada Pension Plan Investment Board. The acquisition increased Vermilion's total ownership in Corrib to 20% and aligns with the Company's sustainable growth-and-income model. In addition to this transaction, Vermilion assumed operatorship of Corrib.

 

The total consideration paid and the fair value of the assets acquired and liabilities assumed as at the date of the acquisition are detailed in the table below:

 

($M)     Consideration
Cash paid to vendor     40,805  
Cash acquired     (82,116 )
Contingent consideration     290  
Total consideration     (41,021 )
       
($M)    

Allocation of consideration 

Capital assets     53,368  
Deferred tax assets     4,239  
Assumed working capital deficit     (35,449 )
Lease obligations     (2,234 )
Asset retirement obligations     (1,565 )
Net assets acquired     18,359  
Gain on business combination     (59,380 )
Total net assets acquired, net of gain on business combination     (41,021 )

 

The fair value of the contingent consideration obligation is estimated to be approximately $0.3 million based on estimated future commodity prices and estimated reserves. Maximum contingent payments are €5.8 million (approximately $9.1 million) through 2025.

 

The gain on the business combination primarily resulted from increases in working capital and the fair value of capital assets from when the purchase and sale agreement was entered into in July 2017 and when the acquisition closed in December 2018.

 

For the year ended December 31, 2018, the acquisition contributed revenues of $1.3 million and net earnings of $0.4 million. Had the acquisition occurred on January 1, 2018, revenues would have increased by $15.2 million and net earnings would have increased by $4.3 million for the year ended December 31, 2018.

 

Minor acquisitions

Vermilion completed a number of minor acquisitions during the year ended December 31, 2018 for total cash consideration of $56.0 million, in which $147.4 million of capital assets, $28.6 million of exploration and evaluation assets, and $104.0 million of asset retirement obligations were recognized.

 

Vermilion Energy Inc. ■  Page 21 ■  2019 Annual Report

 

 

6. Capital assets

 

The following table reconciles the change in Vermilion's capital assets:

 

      2019 2018
Balance at January 1     5,316,873   3,337,965  
Acquisitions     38,472   1,975,327  
Additions     486,677   503,842  
Increase in right-of-use assets     12,348   98,343  
Transfers from exploration and evaluation assets     27,918   29,615  
Impairment     (46,056 ) —  
Depletion and depreciation     (657,863 ) (605,994 )
Changes in asset retirement obligations     (10,354 ) (100,876 )
Foreign exchange     (152,395 ) 78,651  
Balance at December 31     5,015,620   5,316,873  
         
Cost     9,604,933   9,202,604  
Accumulated depletion, depreciation, and impairment     (4,589,313 ) (3,885,731 )
Carrying amount at December 31     5,015,620   5,316,873  
                 

Right-of-use assets

The following table discloses the carrying balance and depreciation charge relating to right-of-use assets by class of underlying asset as at and for the year ended December 31, 2019:

 

  As at Dec 31, 2019 As at Dec 31, 2018
($M) Depreciation Balance Depreciation Balance
Office space 9,745   53,777   9,119   62,279  
Gas processing facilities 7,089   34,701   5,491   41,788  
Oil storage facilities 2,633   16,803   2,728   20,758  
Vehicles and equipment 3,209   10,327   2,020   9,121  
Total 22,676   115,608   19,358   133,946  
                                 

2019 impairment

As a result of declining natural gas price forecasts in Ireland during the year ended December 31, 2019 an indication of impairment was identified in the Ireland CGU. This resulted in the performance of an impairment test whereby the Company determined that the carrying amount exceeded its recoverable amount. A non-cash impairment charge of $46.1 million was recorded in the consolidated statement of net earnings.

 

The recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable reserves using forecasted price and cost estimates and an after-tax discount rate of 9.0%.

 

The following price estimates as issued by Sproule and effective January 1, 2020 were applied:

 

NBP (€/mmbtu) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Sproule 5.58   5.51   5.54   5.65   5.77   5.88   6.00   6.12   6.24   6.37  
                                                             

Changes in any of the key judgments, such as a revision in reserves, changes in forecast commodity prices, foreign exchange rates, capital or operating costs would impact the estimated recoverable amount. As at December 31, 2019, a 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount by $14.7 million (resulting in a $60.8 million impairment) while a 5% decrease in revenues (due to a decrease in commodity price forecasts or reserve estimates) would reduce the estimated recoverable amount by $28.6 million (resulting in a $74.7 million impairment).

 

Vermilion Energy Inc. ■  Page 22 ■  2019 Annual Report

 

 

7. Exploration and evaluation assets

 

The following table reconciles the change in Vermilion's exploration and evaluation assets:

 

  2019 2018
Balance at January 1 303,295   292,278  
Acquisitions —   28,572  
Additions 36,487   14,372  
Changes in asset retirement obligations 36   629  
Transfers to capital assets (27,918 ) (29,615 )
Depreciation (18,689 ) (5,942 )
Foreign exchange (7,062 ) 3,001  
Balance at December 31 286,149   303,295  
     
Cost 371,632   371,015  
Accumulated depreciation (85,483 ) (67,720 )
Carrying amount at December 31 286,149   303,295  
             

8. Asset retirement obligations

 

The following table reconciles the change in Vermilion’s asset retirement obligations:

 

  2019 2018
Balance at January 1 650,164   517,180  
Additional obligations recognized 7,595   211,580  
Changes in estimated abandonment timing and costs 39,722   (98,158 )
Obligations settled (19,442 ) (15,765 )
Accretion 32,667   31,219  
Changes in discount rates (57,635 ) (6,646 )
Foreign exchange (34,870 ) 10,754  
Balance at December 31 618,201   650,164  
             

Vermilion has estimated the asset retirement obligations based on current cost estimates of $1.8 billion (2018 - $1.8 billion).

 

Current cost estimates are inflated to the estimated time of abandonment using inflation rates of between 0.4% and 2.7% (2018 - between 0.5% and 2.9%), resulting in inflated cost estimates of $2.6 billion (2018 - $2.6 billion). These payments are expected to be made between 2020 and 2073, with the majority of costs occurring between 2030 and 2040 ($0.7 billion), 2048 to 2055 ($0.9 billion), and 2060 and 2073 ($0.7 billion).

 

Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 5.3% (2018 - 4.0%) added to risk-free rates based on long-term, risk-free government bonds.

 

The risk-free rates used as inputs to discount the obligations were as follows:

 

  Dec 31, 2019 Dec 31, 2018
Canada 1.7 % 2.2 %
France 0.9 % 1.6 %
Netherlands (0.1 )% 0.4 %
Germany 0.3 % 0.9 %
Ireland 0.6 % 1.6 %
Australia 1.6 % 2.6 %
United States 2.4 % 2.7 %
             

Vermilion Energy Inc. ■  Page 23 ■  2019 Annual Report

 

 

 

A 0.5% increase/decrease in the discount rate applied to asset retirement obligations would decrease/increase asset retirement obligations by approximately $52.7 million. A one-year increase/decrease in the expected timing of abandonment spend would decrease/increase asset retirement obligations by approximately $27.5 million.

 

9. Derivative instruments

 

The following table reconciles the change in the fair value of Vermilion’s derivative instruments:

 

      Year Ended
      Dec 31, 2019       Dec 31, 2018  
Fair value of contracts, beginning of year     38,339       (70,713 )
Reversal of opening contracts settled during the year     (62,735 )     57,719  
Assumed in acquisitions     —       (274 )
Realized gain (loss) on contracts settled during the year     84,219       (111,258 )
Unrealized gain during the year on contracts outstanding at the end of the year     5,308       51,607  
Net receipt from counterparties on contract settlements during the year     (84,219 )     111,258  
Unrealized loss on derivatives designated as cash flow hedges     (1,071 )     —  
Unrealized gain on derivatives designated as net investment hedges     9,168       —  
Fair value of contracts, end of year     (10,991 )     38,339  
Comprised of:            
Current derivative asset     55,645       95,667  
Current derivative liability     (62,405 )     (41,016 )
Non-current derivative asset     20,127       1,215  
Non-current derivative liability     (24,358 )     (17,527 )
Fair value of contracts, end of year     (10,991 )     38,339  

 

The (gain) loss on derivative instruments for 2019 and 2018 were comprised of the following:

 

      Year Ended
      Dec 31, 2019       Dec 31, 2018  
Realized (gain) loss on contracts settled during the year     (84,219 )     111,258  
Reversal of opening contracts settled during the year     62,735       (57,719 )
Unrealized gain on contracts outstanding at the end of the year     (5,308 )     (51,607 )
(Gain) loss on derivative instruments     (26,792 )     1,932  

 

Please refer to Note 19 (Supplemental information) for a listing of Vermilion's outstanding derivative instruments as at December 31, 2019.

 

Vermilion Energy Inc. ■  Page 24 ■  2019 Annual Report

 

 

10. Leases

 

Vermilion had the following future commitments associated with its lease obligations:

 

      As at
($M)     Dec 31, 2019       Dec 31, 2018  
Less than 1 year     29,217       30,641  
1 - 3 years     46,501       50,024  
3 - 5 years     38,177       34,313  
After 5 years     26,168       42,739  
Total lease payments     140,063       157,717  
Amounts representing interest     (23,309 )     (24,583 )
Present value of net lease payments     116,754       133,134  
Current portion of lease obligations     (23,682 )     (24,945 )
Non-current portion of lease obligations     93,072       108,189  
             
Total cash outflow     33,276       27,468  
Interest on lease liabilities     6,984       7,185  

 

11. Taxes

 

The following table reconciles Vermilion’s deferred tax asset and liability:

 

      As at
      Dec 31, 2019     Dec 31, 2018  
Deferred tax assets:            
Capital assets     (296,793 )     (296,591 )
Non-capital losses     454,339       487,398  
Asset retirement obligations     36,170       38,429  
Derivative contracts     2,712       (11,937 )
Unrealized foreign exchange     (3,034 )     (1,873 )
Other     3,149       3,985  
Deferred tax assets     196,543       219,411  
Deferred tax liabilities:            
Capital assets     262,669       319,553  
Non-capital losses     (48,007 )     (57,785 )
Asset retirement obligations     123,257       51,031  
Unrealized foreign exchange     —       10,715  
Other     (1,610 )     (5,380 )
Deferred tax liabilities     336,309       318,134  

 

Vermilion Energy Inc. ■  Page 25 ■  2019 Annual Report

 

 

Income tax expense differs from the amount that would have been expected if the reported earnings had been subject only to the statutory Canadian income tax rate as follows:

 

      Year Ended
      Dec 31, 2019       Dec 31, 2018  
Earnings before income taxes     141,125       354,698  
Canadian corporate tax rate (1)     26.72 %     27.00 %
Expected tax expense     37,709       95,768  
Increase (decrease) in taxes resulting from:            
Petroleum resource rent tax rate (PRRT) differential (2)     17,455       5,349  
Foreign tax rate differentials (2) (3)     5,543       3,086  
Equity based compensation expense     3,733       13,883  
Amended returns and changes to estimated tax pools and tax positions     (24,387 )     (873 )
Statutory rate changes and the estimated reversal rates associated with temporary differences(4)     9,543       —  
Derecognition (recognition) of deferred tax assets     65,522       (26,931 )
Adjustment for uncertain tax positions     3,659       8,080  
Gain on business combinations     —       (28,812 )
Other non-deductible items     (10,451 )     13.498  
Provision for income taxes     108,326       83,048  

(1)In Canada, the lower tax rate is a result of reductions to the Alberta corporate tax rate from 12% to 8% over four years.
(2)In Australia, current taxes include both corporate income tax rates and PRRT. Corporate income tax rates were applied at a rate of 30% and PRRT was applied at a rate of 40%.
(3)The applicable tax rates for 2019 were: 32.0% in France, 50.0% in the Netherlands, 31.8% in Germany, 25.0% in Ireland, and 21.0% in the United States (2018: 34.4% in France, 50.0% in the Netherlands, 30.2% in Germany, 25.0% in Ireland, and 21.0% in the United States).
(4)On December 28, 2019, the French Parliament approved the Finance Bill for 2020. The Finance Bill for 2020 provides for a progressive decrease of the French corporate income tax rate for companies with sales below €250 million from 32.0% to 25.8% by 2022. Effective July 1, 2019, Alberta decreased its corporate tax rate from 12% to 11% for 2019 with further 1% rate reductions every year on January 1 until the general corporate tax rate is 8% on January 1, 2022.

 

At December 31, 2019, Vermilion had $2.5 billion (2018 - $2.6 billion) of unused tax losses of which $1.2 billion (2018 - $1.1 billion) relates to Vermilion's Canada segment and expire between 2025 and 2040. The majority of the remaining unused tax losses relates to Vermilion's Ireland segment and do not expire.

 

At December 31, 2019, Vermilion derecognized $65.5 million (2018 - recognized $26.9 million) of deferred income assets relating to the aforementioned non-expiring tax loss in Ireland as there is uncertainty as to the Company's ability to fully utilize such losses based on the forecasted commodity prices in effect as at December 31, 2019.

 

The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized as at December 31, 2019 is approximately $0.5 billion (2018 – approximately $0.5 billion).

 

12. Long-term debt

 

The following table summarizes Vermilion’s outstanding long-term debt:

 

      As at
      Dec 31, 2019       Dec 31, 2018  
Revolving credit facility     1,539,225       1,392,206  
Senior unsecured notes     385,440       404,001  
Long-term debt     1,924,665       1,796,207  

 

The fair value of the revolving credit facility is equal to its carrying value due to the use of short-term borrowing instruments at market rates of interest. The fair value of the senior unsecured notes as at December 31, 2019 was $366.4 million.

 

Vermilion Energy Inc. ■  Page 26 ■  2019 Annual Report

 

 

The following table reconciles the change in Vermilion’s long-term debt:

 

      2019     2018
Balance at January 1     1,796,207       1,270,330  
Borrowings on the revolving credit facility     207,787       251,155  
Assumed on acquisitions (1)     —       188,496  
Amortization of transaction costs and prepaid interest     4,379       2,286  
Foreign exchange     (83,708 )     83,940  
Balance at December 31     1,924,665       1,796,207  
(1)Pursuant to the acquisitions described in Note 5 (Business combinations), Vermilion assumed the credit facilities of the acquired companies and immediately extinguished them following the respective acquisitions using proceeds from Vermilion's revolving credit facility.

 

Revolving credit facility

At December 31, 2019, Vermilion had in place a bank revolving credit facility maturing May 31, 2023 with the following terms:

 

  As at
  Dec 31, 2019 Dec 31, 2018
Total facility amount 2,100,000   1,800,000  
Amount drawn (1,539,225 ) (1,392,206 )
Letters of credit outstanding (10,230 ) (15,400 )
Unutilized capacity 550,545   392,394  
                 

The facility can be extended from time to time at the option of the lenders and upon notice from Vermilion. If no extension is granted by the lenders, the amounts owing pursuant to the facility are due at the maturity date. The facility is secured by various fixed and floating charges against the subsidiaries of Vermilion.

 

The facility bears interest at a rate applicable to demand loans plus applicable margins.

 

As at December 31, 2019, the revolving credit facility was subject to the following financial covenants:

 

        As at
Financial covenant     Limit Dec 31, 2019 Dec 31, 2018
Consolidated total debt to consolidated EBITDA     Less than 4.0 1.94 1.72
Consolidated total senior debt to consolidated EBITDA     Less than 3.5 1.56 1.34
Consolidated EBITDA to consolidated interest expense     Greater than 2.5 13.46 14.57
                 

The financial covenants include financial measures defined within the revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by the revolving credit facility agreement as follows:

 

•Consolidated total debt: Includes all amounts classified as “Long-term debt” and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on the balance sheet.
•Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt.
•Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary.
•Consolidated total interest expense: Includes all amounts classified as "Interest expense", but excluding interest on operating leases as defined under IAS 17.

 

As at December 31, 2019 and 2018, Vermilion was in compliance with the above covenants.

 

Vermilion Energy Inc. ■  Page 27 ■  2019 Annual Report

 

 

Senior unsecured notes

On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, to be paid semi-annually on March 15 and September 15. The notes mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally with existing and future senior unsecured indebtedness of the Company.

 

The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.

 

Vermilion may, at its option, redeem the notes prior to maturity as follows:

•Prior to March 15, 2020, Vermilion may redeem up to 35% of the original principal amount of the senior unsecured notes with the proceeds of certain equity offerings by the Company at a redemption price of 105.625% of the principal amount plus any accrued and unpaid interest to the applicable redemption date.
•Prior to March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at a price equal to 100% of the principal amount of the senior unsecured notes, plus an applicable premium and any accrued and unpaid interest.
•On or after March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest.

 

Year   Redemption price
2020   104.219 %
2021   102.813 %
2022   101.406 %
2023 and thereafter   100.000 %
       

Cross currency interest rate swaps

On June 12, 2019, Vermilion entered into a series of cross currency interest rate swaps with a syndicate of banks. Vermilion applied hedge accounting to these derivative instruments. The cross currency interest rate swaps mature March 15, 2025 and include regular cash receipts and payments on March 15 and September 15 of each year. On a net basis, the cross currency interest swaps result in Vermilion receiving US dollar interest and principal amounts equal to the interest and principal payments under the US $300.0 million of senior unsecured notes. In exchange, Vermilion will make interest and principal payments equal to €265.0 million at a rate of 3.275%.

 

The cross currency interest rate swaps were executed as two separate sets of instruments:

•US dollar to Canadian dollar ("USD-to-CAD") cross currency interest rate swaps: Vermilion receives US dollar interest and principal amounts equal to US$300.0 million of debt at 5.625% interest and pays Canadian dollar interest and principal amounts equal to $398.5 million of debt at 5.40% interest.
•Canadian dollar to Euro ("CAD-to-EUR") cross currency interest rate swaps: Vermilion receives Canadian dollar interest and principal amounts equal to $398.5 million of debt at 5.40% interest and pays Euro interest and principal amounts equal to €265.0 million at a rate of 3.275%.

 

The USD-to-CAD cross currency interest swaps have been designated as the hedging instrument in a cash flow hedge to mitigate the risk of the fluctuation of interest and principal cash flows due to changes in foreign currency rates related to the Senior Unsecured Notes described above. The forward element of the swap contract is treated as the excluded component and is initially recognized within other comprehensive income. The excluded component is amortized to net earnings in interest expense on a systematic basis. As the timing and amount of the cash flows received on the USD-to-CAD cross currency interest rate swaps offset the timing and amount of the cash flows paid on the senior unsecured notes, the economic relationship is expected to be highly effective. The change in the value of the hedged item associated with a change in spot foreign exchange rates is initially recognized in other comprehensive income. This change is reclassified from other comprehensive income to net earnings (and recorded as an foreign exchange gain or loss) to offset the associated foreign exchange gain or loss recognized on the senior unsecured notes.

 

The CAD-to-EUR cross currency interest rate swaps have been designated as the hedging instrument in a net investment hedge to mitigate the effective change in exchange rates on our net investments in Euro denominated foreign subsidiaries. The change in the value of the hedged item associated with a change in spot foreign exchange rates is initially recognized in other comprehensive income. This change is reclassified from other comprehensive income to net earnings (and recorded as a foreign exchange gain or loss) only if the net investment is disposed of by sale. The forward element of the swap contract is treated as the excluded component and is initially recognized within other comprehensive income. The excluded component is amortized to net earnings in interest expense on a systematic basis.

 

Vermilion Energy Inc. ■  Page 28 ■  2019 Annual Report

 

 

13. Shareholders' capital

 

The following table reconciles the change in Vermilion’s shareholders’ capital:

 

  2019 2018
Shareholders' capital  Shares ('000s) Amount ($M)  Shares ('000s) Amount ($M)
Balance at January 1 152,704   4,008,828   122,119   2,650,706  
Shares issued for acquisition —   —   27,883   1,234,676  
Shares issued for the Dividend Reinvestment Plan 1,417   34,937   1,179   49,051  
Vesting of equity based awards 1,359   51,108   1,025   54,057  
Shares issued for equity based compensation 552   15,868   314   12,565  
Share-settled dividends on vested equity based awards 258   8,290   184   7,773  
Balance at December 31 156,290   4,119,031   152,704   4,008,828  
                                 

Vermilion is authorized to issue an unlimited number of common shares with no par value.

 

Dividends are approved by the Board of Directors and are paid monthly. Dividends declared to shareholders for the year ended December 31, 2019 were $427.3 million or $2.76 per common share (2018 - $388.1 million or $2.72 per common share).

 

Subsequent to the end of year-end and prior to the consolidated financial statements being authorized for issue on March 5, 2020, Vermilion declared dividends of $72.0 million or $0.23 per share for each of January and February of 2020.

 

14. Capital disclosures

 

Vermilion defines capital as net debt (long-term debt plus net working capital) and shareholders’ capital. Vermilion excludes from its definition of capital any obligations secured by an offsetting asset, such as lease obligations.

 

Vermilion monitors the ratio of net debt to fund flows from operations. As at December 31, 2019, our ratio of net debt to trailing fund flows from operations is 2.20 (2018 - 2.30). Vermilion manages the ratio of net debt to fund flows from operations (refer to Note 4 - Segmented information) by monitoring capital expenditures, dividends, and asset retirement obligations with expected fund flows from operations. Vermilion intends for the ratio of net debt to fund flows from operations to trend towards 1.5 over time.

 

The following table calculates Vermilion’s ratio of net debt to fund flows from operations:

 

  Year Ended
  Dec 31, 2019   Dec 31, 2018
Long-term debt 1,924,665   1,796,207  
Current liabilities 416,210   563,199  
Current assets (347,681 ) (429,877 )
Net debt 1,993,194   1,929,529  
       
Ratio of net debt to four quarter trailing fund flows from operations 2.20   2.30  

 

Vermilion Energy Inc. ■  Page 29 ■  2019 Annual Report

 

 

15. Equity based compensation

 

The following table summarizes the number of awards outstanding under the VIP and the Five-Year Compensation Arrangement:

 

Number of VIP and Five Year Compensation Awards ('000s)

     2019     2018

Opening balance

     1,931       1,685  
Granted     1,193       932  
Vested     (688 )     (520 )
Forfeited     (168 )     (166 )
Closing balance (1)     2,268       1,931  
                 
(1)As at December 31, 2019, 51,860 awards (2018 - 36,845 awards) are included in the closing balance related to the Five-Year Compensation Arrangement.

 

For the year ended December 31, 2019, the awards had a weighted average grant date fair value of $30.92 (2018 - $40.57). Equity based compensation expense for the awards is calculated based on the number of awards outstanding multiplied by the estimated performance factor that will be realized upon vesting (2019 - 1.7; 2018 - 1.9) adjusted by an estimated annual forfeiture rate (2019 - 5.2%; 2018 - 4.6%). Equity based compensation expense of $46.6 million was recorded during the year ended December 31, 2019 (2018 - $48.2 million) relating to the awards.

 

For the year ended December 31, 2019, there were 72,191 DSUs granted and outstanding with a weighted average grant date fair value of $25.25. Equity based compensation expense of $1.8 million was recorded during the year ended December 31, 2019 relating to the DSUs.

 

16. Per share amounts

 

Basic and diluted net earnings per share have been determined based on the following:

 

      Year Ended
      Dec 31, 2019       Dec 31, 2018
Net earnings     32,799       271,650  
               
Basic weighted average shares outstanding ('000s)     154,736       140,619  
Dilutive impact of equity based compensation ('000s)     1,359       1,716  
Diluted weighted average shares outstanding ('000s)     156,095       142,335  
               
Basic earnings per share     0.21       1.93  
Diluted earnings per share     0.21       1.91  
                 

 

Vermilion Energy Inc. ■  Page 30 ■  2019 Annual Report

 

 

 

17. Financial instruments

 

Classification of financial instruments

 

The following table summarizes the carrying value relating to Vermilion’s financial instruments:

 

  As at Dec 31, 2019 As at Dec 31, 2018
($M) FVTPL FVTOCI Amortized Cost Total FVTPL FVTOCI Amortized Cost Total
                 
Cash and cash equivalents 29,028   —   —   29,028   26,809   —   —   26,809  
Derivative assets 64,135   11,637   —   75,772   96,882   —   —   96,882  
Derivative liabilities (83,223 ) (3,540 ) —   (86,763 ) (58,543 ) —   —   (58,543 )
Accounts receivable —   —   211,409   211,409   —   —   260,322   260,322  
Accounts payable and accrued liabilities —   —   (312,442 ) (312,442 ) —   —   (449,651 ) (449,651 )
Dividends payable —   —   (35,947 ) (35,947 ) —   —   (35,122 ) (35,122 )
Lease obligations —   —   (93,072 ) (93,072 ) —   —   (108,189 ) (108,189 )
Long-term debt (1) —   —   (1,924,665 ) (1,924,665 ) —   —   (1,796,207 ) (1,796,207 )

 

(1)The carrying value of the above equals fair value except for long-term debt. The fair value of long-term debt was $1,905,588 (2018 - $1,781,809).

The carrying value of accounts receivable, accounts payable and accrued liabilities, dividends payable and lease obligations are a reasonable approximation of their fair value due to the short maturity of these financial instruments. The carrying value of long-term debt outstanding on the revolving credit facility approximates its fair value due to the use of short-term borrowing instruments at market rates of interest.

 

Fair value measurements are categorized into a fair value hierarchy based on the lowest level input that is significant to the fair value measurement:

•Level 1 inputs are determined by reference to unadjusted quoted prices in active markets for identical assets or liabilities. Inputs used in fair value measurement of cash and cash equivalents, the revolving credit facility, and the senior unsecured notes are categorized as Level 1.
•Level 2 inputs are determined based on inputs other than unadjusted quoted prices that are observable, either directly or indirectly. The fair value of Vermilion’s derivative assets and liabilities are determined using pricing models that incorporate future price forecasts (supported by prices from observable market transactions) and credit risk adjustments.
•Level 3 inputs are not based on observable market data. Vermilion does not have any financial instruments classified as Level 3.

 

There were no transfers between levels in the hierarchy in the years ended December 31, 2019 and 2018.

 

Nature and Extent of Risks Associated with Financial Instruments

Vermilion is exposed to financial risks from its financial instruments. These financial risks include: market risk (includes commodity price risk, interest rate risk, and currency risk), credit risk, and liquidity risk.

 

Commodity price risk

Vermilion is exposed to commodity price risk on its derivative assets and liabilities which are used as part of the Company’s risk management program to mitigate the effects of changes in commodity prices on future cash flows. While transactions of this nature relate to future petroleum and natural gas production, Vermilion does not designate these derivative assets and liabilities as accounting hedges. As such, changes in commodity prices impact the fair value of derivative instruments and the corresponding gains or losses recognized on derivative instruments.

 

Currency risk

Vermilion is exposed to currency risk on its financial instruments denominated in foreign currencies. These financial instruments include cash and cash equivalents, accounts receivables, accounts payables, lease obligations, long-term debt, derivative assets and derivative liabilities. These financial instruments are primarily denominated in the US dollar and the Euro. Vermilion monitors its exposure to currency risk and reviews whether the use of derivative financial instruments is appropriate to manage potential fluctuations in foreign exchange rates.

 

Interest rate risk

Vermilion is exposed to interest rate risk on its revolving credit facility, which consists of short-term borrowing instruments that bear interest at market rates. Thus, changes in interest rates could result in an increase or decrease in the amount paid by Vermilion to service this debt.

 

The following table summarizes the increase (positive values) or decrease (negative values) to net earnings before tax due to a change in the value of Vermilion’s financial instruments as a result of a change in the relevant market risk variable. This analysis does not attempt to reflect any interdependencies between the relevant risk variables.

 

Vermilion Energy Inc. ■  Page 31 ■  2019 Annual Report

 

 

($M) Dec 31, 2019  Dec 31, 2018 
Currency risk - Euro to Canadian dollar        
$0.01 increase in strength of the Canadian dollar against the Euro  (1,599)  (2,205)
$0.01 decrease in strength of the Canadian dollar against the Euro  1,599   2,205 
         
Currency risk - US dollar to Canadian dollar        
$0.01 increase in strength of the Canadian dollar against the US $  (5,594)  2,981 
$0.01 decrease in strength of the Canadian dollar against the US $  5,594   (2,981)
         
Commodity price risk - Crude oil        
US $5.00/bbl increase in crude oil price used to determine the fair value of derivatives  (44,106)  (18,421)
US $5.00/bbl decrease in crude oil price used to determine the fair value of derivatives  47,777   17,351 
         
Commodity price risk - European natural gas        
€ 0.5/GJ increase in European natural gas price used to determine the fair value of derivatives  (28,192)  (36,508)
€ 0.5/GJ decrease in European natural gas price used to determine the fair value of derivatives  22,670   33,005 

Credit risk:

Vermilion is exposed to credit risk on accounts receivable and derivative assets in the event that customers, joint operation partners, or counterparties fail to discharge their contractual obligations. As at December 31, 2019, Vermilion’s maximum exposure to receivable credit risk was $287.2 million (December 31, 2018 - $357.2 million) which is the value of accounts receivable and derivative assets on the balance sheet.

 

Vermilion’s accounts receivable primarily relates to customers and joint operations partners in the petroleum and natural gas industry. These amounts are subject to normal industry payment terms and credit risks. Vermilion manages these risks by monitoring the creditworthiness of customers and joint operations partners and, where appropriate, obtaining assurances such as parental guarantees and letters of credit. Vermilion determines the lifetime expected credit losses recognized on accounts receivable using a provision matrix. In preparing the provision matrix, the Company takes into account historical credit loss experience based on the aging of accounts receivable, adjusted as necessary for current and future petroleum and natural gas prices to the extent that changes in pricing may negatively impact the Company's customers and joint operations partners. The lifetime expected credit losses on accounts receivable as at December 31, 2019 and 2018 is not material. As at the balance sheet date, approximately 3.6% (2018 - 0.7%) of the accounts receivable balance was outstanding for more than 90 days. Vermilion considers the balance of accounts receivable to be collectible.

 

Vermilion’s derivative assets primarily relates to the fair value of financial instruments used as part of the Company’s risk management program to mitigate the effects of changes in commodity prices on future cash flows. Vermilion manages this risk by monitoring the creditworthiness of counterparties, transacting primarily with counterparties that have investment grade third party credit ratings, and by limiting the concentration of financial exposure to individual counterparties. As a result, Vermilion has not obtained collateral or other security to support its financial derivatives.

 

Vermilion’s cash deposited in financial institutions and guaranteed investment certificates are also subject to counterparty credit risk. Vermilion mitigates this risk by transacting with financial institutions with high third party credit ratings.

 

Liquidity risk:

Liquidity risk is the risk that Vermilion will encounter difficulty in meeting obligations associated with its financial liabilities. Vermilion does not consider this to be a significant risk as its financial position and available committed borrowing facility provide significant financial flexibility and allow Vermilion to meet its obligations as they come due.

 

The following table summarizes Vermilion’s undiscounted non-derivative financial liabilities and their contractual maturities:

 

       1 month to   3 months to   1 year to 
($M)  1 month   3 months   1 year   5 years 
December 31, 2019   134,502    208,752    5,136    1,608,435 
December 31, 2018   167,491    306,927    10,355    1,472,087 

 

Vermilion Energy Inc. ■  Page 32 ■  2019 Annual Report

 

 

18. Related party disclosures

 

The compensation of directors and management is reviewed annually by the independent Governance and Human Resources Committee against industry practices for oil and gas companies of similar size and scope.

 

The following table summarizes the compensation of directors and other members of key management personnel during the years ended December 31, 2019 and 2018:

 

  Year Ended 
  Dec 31, 2019  Dec 31, 2018 
Short-term benefits  8,084   6,018 
Equity based compensation  16,296   16,309 
   24,380   22,327 
Number of individuals included in the above amounts  19   18 

 

During the year ended December 31, 2019, Vermilion recorded $0.2 million of office rent recoveries (2018 - $0.2 million) relating to an office sub-lease to a company whose Managing Director is also a member of Vermilion's Board of Directors. This related party transaction is provided in the normal course of business under the same commercial terms and conditions as transactions with unrelated companies and is recorded at the exchange amount.

 

Vermilion Energy Inc. ■  Page 33 ■  2019 Annual Report

 

 

19. Supplemental information

 

Changes in non-cash working capital was comprised of the following:

 

  Year Ended 
  Dec 31, 2019   Dec 31, 2018 
Changes in:        
Accounts receivable  48,913   (94,562)
Crude oil inventory  (1,638)  (10,646)
Prepaid expenses  (2,882)  (4,896)
Accounts payable and accrued liabilities  (137,209)  230,567 
Income taxes payable  (31,994)  (1,651)
Working capital assumed in acquisitions  —   (58,841)
Initial recognition of IFRS 16 liability  —   (10,483)
Foreign exchange  2,590   (873)
Changes in non-cash working capital  (122,220)  48,615 
         
Changes in non-cash operating working capital  (65,148)  (6,876)
Changes in non-cash investing working capital  (57,072)  55,491 
Changes in non-cash working capital  (122,220)  48,615 

 

Cash and cash equivalents was comprised of the following:

 

  As at 
  Dec 31, 2019  Dec 31, 2018 
Cash on deposit with financial institutions  28,898   26,604 
Guaranteed investment certificates  130   205 
Cash and cash equivalents  29,028   26,809 

 

Wages and benefits included in operating expenses and general and administration expenses were:

 

  Year Ended 
  Dec 31, 2019  Dec 31, 2018 
Operating expense  77,868   66,095 
General and administration expense  47,310   42,496 
Wages and benefits  125,178   108,591 

 

Vermilion Energy Inc. ■  Page 34 ■  2019 Annual Report

 

 

 

The following tables summarize Vermilion's outstanding risk management positions as at December 31, 2019:

 

    Unit   Currency   Bought Put
Volume		   Weighted
Average
Bought Put
Price		   Sold Call
Volume		   Weighted
Average Sold
Call Price		   Sold Put
Volume		   Weighted
Average Sold
Put Price		   Swap Volume   Weighted
Average Swap
Price		  
Dated Brent  
Q1 2020   bbl   USD   3,000   62.25   3,000   67.39   3,000   55.58   —   —  
Q2 2020   bbl   USD   3,000   62.25   3,000   67.39   3,000   55.58   —   —  
WTI  
Q1 2020   bbl   USD   9,750   54.18   6,000   60.95   9,750   46.23   1,500   59.17  
Q2 2020   bbl   USD   7,250   53.07   4,000   60.23   7,250   44.86   —   —  
Q3 2020   bbl   USD   500   57.00   500   61.25   500   52.00   —   —  
Q4 2020   bbl   USD   500   57.00   500   61.25   500   52.00   —   —  
AECO                                          
Q1 2020   mcf   CAD   10,426   1.58   10,426   2.56   —   —   —   —  
Q2 2020   mcf   CAD   —   —   —   —   —   —   10,426   1.39  
Q3 2020   mcf   CAD   —   —   —   —   —   —   10,426   1.39  
Q4 2020   mcf   CAD   —   —   —   —   —   —   3,513   1.39  
AECO Basis (AECO less NYMEX Henry Hub)  
Q1 2020   mcf   USD   —   —   —   —   —   —   32,500   (0.94 ) 
Q2 2020   mcf   USD   —   —   —   —   —   —   52,500   (1.12 ) 
Q3 2020   mcf   USD   —   —   —   —   —   —   50,000   (1.12 ) 
Q4 2020   mcf   USD   —   —   —   —   —   —   36,739   (1.11 ) 
Q1 2021   mcf   USD   —   —   —   —   —   —   30,000   (1.11 ) 
Q2 2021   mcf   USD   —   —   —   —   —   —   45,000   (1.08 ) 
Q3 2021   mcf   USD   —   —   —   —   —   —   45,000   (1.08 ) 
Q4 2021   mcf   USD   —   —   —   —   —   —   35,054   (1.09 ) 
Q1 2022   mcf   USD   —   —   —   —   —   —   30,000   (1.10 ) 
Q2 2022   mcf   USD   —   —   —   —   —   —   35,000   (1.09 ) 
Q3 2022   mcf   USD   —   —   —   —   —   —   35,000   (1.09 ) 
Q4 2022   mcf   USD   —   —   —   —   —   —   11,793   (1.09 ) 
NYMEX Henry Hub  
Q1 2020   mcf   USD   10,000   2.75   10,000   3.10   10,000   2.25   —   —  

 

Vermilion Energy Inc. ■  Page 35 ■  2019 Annual Report

 

 

    Unit   Currency   Bought Put
Volume		   Weighted
Average
Bought Put
Price		   Sold Call
Volume		   Weighted
Average Sold
Call Price		   Sold Put
Volume		   Weighted
Average Sold
Put Price		   Swap Volume   Weighted
Average Swap
Price		  
NBP                                          
Q1 2020   mcf   EUR   49,135   5.27   49,135   5.83   49,135   3.98   —   —  
Q2 2020   mcf   EUR   41,765   5.21   41,765   5.53   41,765   3.83   —   —  
Q3 2020   mcf   EUR   41,765   5.21   41,765   5.52   41,765   3.83   —   —  
Q4 2020   mcf   EUR   61,419   5.28   63,875   5.77   61,419   3.90   —   —  
Q1 2021   mcf   EUR   54,048   5.44   56,505   5.85   54,048   3.94   —   —  
Q2 2021   mcf   EUR   46,678   5.42   46,678   5.80   46,678   3.92   —   —  
Q3 2021   mcf   EUR   46,678   5.42   46,678   5.77   46,678   3.92   —   —  
Q4 2021   mcf   EUR   54,048   5.44   54,048   5.72   54,048   3.94   —   —  
Q1 2022   mcf   EUR   19,654   5.42   19,654   6.30   19,654   3.79   —   —  
Q2 2022   mcf   EUR   12,284   5.33   12,284   6.03   12,284   3.60   —   —  
NBP Basis (NBP less NYMEX Henry Hub)  
Q1 2020   mcf   USD   17,500   2.74   17,500   3.99   —   —   —   —  
Q2 2020   mcf   USD   15,000   2.61   15,000   3.98   —   —   —   —  
Q3 2020   mcf   USD   15,000   2.61   15,000   3.98   —   —   —   —  
Q4 2020   mcf   USD   10,000   3.24   10,000   3.98   —   —   —   —  
TTF                                          
Q1 2020   mcf   EUR   7,370   5.37   7,370   6.25   7,370   3.81   —   —  
Q2 2020   mcf   EUR   13,512   5.36   9,827   6.15   13,512   3.73   4,913   5.54  
Q3 2020   mcf   EUR   13,512   5.36   9,827   6.15   13,512   3.73   3,258   5.45  
Q4 2020   mcf   EUR   7,370   5.37   7,370   6.25   7,370   3.81   —   —  
TTF Basis (TTF less NYMEX Henry Hub)  
Q2 2020   mcf   USD   2,500   3.50   2,500   4.00   —   —   5,000   3.21  
Q3 2020   mcf   USD   2,500   3.50   2,500   4.00   —   —   5,000   3.21  

 

Cross Currency Interest Rate    Receive Notional Amount   Receive Rate    Pay Notional Amount   Pay Rate  
Swap Jan 2020 - Mar 2025   300,000,000 USD   5.625%   265,048,910 EUR   3.275%  
Swap Q1 2020   1,735,895,470 USD   LIBOR + 1.70%   2,304,900,000 CAD   CDOR + 1.25%  
                         
VET Equity Swaps           Initial Share Price   Share Volume  
Swap Jan 2020 - Sep 2021             20.9788 CAD   2,250,000  
Swap Jan 2020 - Oct 2021             22.4587 CAD   1,500,000  

 

Vermilion Energy Inc. ■  Page 36 ■  2019 Annual Report

 

 

The following sold option instruments allow the counterparties, at the specified date, to enter into a derivative instrument contract with Vermilion at the detailed terms:

 

Period if Option
Exercised		   Unit   Currency   Option
Expiration
Date		   Bought Put
Volume		   Weighted
Average
Bought Put
Price		   Sold Call
Volume		   Weighted
Average
Sold Call
Price		   Sold Put
Volume		   Weighted
Average
Sold Put
Price		   Swap
Volume		   Weighted
Average
Swap Price		  
Dated Brent                                              
Feb 2020 - Jan 2021   bbl   USD   28-Jan-20   —   —   —   —   —   —   500   63.00  
Feb 2020 - Jan 2021   bbl   USD   31-Jan-20   —   —   —   —   —   —   3,000   62.00  
Mar 2020 - Feb 2021   bbl   USD   28-Feb-20   —   —   —   —   —   —   4,500   62.71  
Apr 2020 - Mar 2021   bbl   USD   31-Mar-20   —   —   —   —   —   —   3,500   63.32  
Apr 2020 - Mar 2021   bbl   USD   31-Mar-20   1,000   64.00   1,000   69.00   1,000   59.00   —   —  
May 2020 - Apr 2021   bbl   USD   30-Apr-20   —   —   —   —   —   —   4,000   62.63  
NBP                                              
Oct 2020 - Jun 2022   mcf   EUR   30-Jun-20   —   —   —   —   —   —   2,457   5.86  
Jan 2021 - Sep 2022   mcf   EUR   30-Jun-20   —   —   —   —   —   —   2,457   5.86  
Jan 2021 - Sep 2022   mcf   USD   30-Jun-20   —   —   —   —   —   —   2,457   6.45  
Jan 2022 - Dec 2022   mcf   USD   30-Jun-20   —   —   —   —   —   —   9,827   6.45  
Oct 2020 - Jun 2022   mcf   EUR   30-Sep-20   —   —   —   —   —   —   2,457   6.15  

 

Vermilion Energy Inc. ■  Page 37 ■  2019 Annual Report

 

 

DIRECTORS

 

Lorenzo Donadeo 1

Calgary, Alberta

 

Larry J. Macdonald 2, 4, 6, 8

Chairman & CEO, Point Energy Ltd.

Calgary, Alberta

 

Carin Knickel 6, 8, 12

Golden, Colorado

 

Stephen P. Larke 4, 6, 12

Calgary, Alberta

 

Loren M. Leiker 10

McKinney, Texas

 

Timothy R. Marchant 7, 10, 11

Calgary, Alberta

 

Anthony Marino

Calgary, Alberta

 

Robert Michaleski 4, 5

Calgary, Alberta

 

William Roby 8, 9, 12

Katy, Texas

 

Catherine L. Williams 3, 6

Calgary, Alberta

 

1 Chairman of the Board

2 Lead Director

3 Audit Committee Chair (Independent)

4 Audit Committee Member

5 Governance and Human Resources Committee Chair __(Independent)

6 Governance and Human Resources Committee Member

7 Health, Safety and Environment Committee Chair __(Independent)

8 Health, Safety and Environment Committee Member

9 Independent Reserves Committee Chair (Independent)

10 Independent Reserves Committee Member

11 Sustainability Committee Chair (Independent)

12 Sustainability Committee Member

 

 

 

OFFICERS AND KEY PERSONNEL

CANADA

 

Anthony Marino

President & Chief Executive Officer

 

Lars Glemser

Vice President & Chief Financial Officer

 

Mona Jasinski

Executive Vice President, People and Culture

 

Michael Kaluza

Executive Vice President & Chief Operating Officer

 

Dion Hatcher

Vice President Canada Business Unit

 

Terry Hergott

Vice President Marketing

 

Kyle Preston

Vice President Investor Relations

 

Jenson Tan

Vice President Business Development

 

Daniel Goulet

Director Corporate HSE

 

Jeremy Kalanuk

Director Operations Accounting

 

Bryce Kremnica

Director Field Operations - Canada Business Unit

 

Steve Reece

Director Information Technology & Information Systems

 

Tom Rafter

Director Land - Canada Business Unit

 

Adam Iwanicki

Director Marketing

 

Robert (Bob) J. Engbloom

Corporate Secretary

 

UNITED STATES

Scott Seatter

Managing Director - U.S. Business Unit

 

Timothy R. Morris

Director U.S. Business Development - U.S.

Business Unit

 

EUROPE

Gerard Schut

Vice President European Operations

 

Sylvain Nothhelfer

Managing Director - France Business Unit

 

Sven Tummers

Managing Director - Netherlands Business Unit

 

Bill Liutkus

Managing Director - Germany Business Unit

 

Darcy Kerwin

Managing Director - Ireland Business Unit

 

Bryan Sralla

Managing Director - Central & Eastern Europe Business Unit

 

AUSTRALIA

Bruce D. Lake

Managing Director - Australia Business Unit 

AUDITORS

 

Deloitte LLP

Calgary, Alberta

 

BANKERS

 

The Toronto-Dominion Bank

 

Bank of Montreal

 

Canadian Imperial Bank of Commerce

 

Export Development Canada

 

National Bank of Canada

 

Royal Bank of Canada

 

The Bank of Nova Scotia

 

Wells Fargo Bank N.A., Canadian Branch

 

HSBC Bank Canada

 

Bank of America N.A., Canada Branch

 

Citibank N.A., Canadian Branch - Citibank Canada

 

JPMorgan Chase Bank, N.A., Toronto Branch

 

La Caisse Centrale Desjardins du Québec

 

Alberta Treasury Branches

 

Canadian Western Bank

 

Goldman Sachs Lending Partners LLC

 

Barclays Bank PLC

 

 

EVALUATION ENGINEERS

 

GLJ Petroleum Consultants Ltd.

Calgary, Alberta

 

LEGAL COUNSEL

 

Norton Rose Fulbright Canada LLP

Calgary, Alberta

 

TRANSFER AGENT

 

Computershare Trust Company of Canada

 

STOCK EXCHANGE LISTINGS

 

The Toronto Stock Exchange (“VET”)

The New York Stock Exchange (“VET”)

 

INVESTOR RELATIONS

Kyle Preston

Vice President Investor Relations

403-476-8431 TEL

403-476-8100 FAX

1-866-895-8101 IR TOLL FREE

investor_relations@vermilionenergy.com

 

 

 

Vermilion Energy Inc. ■  Page 38 ■  2019 Annual Report