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Vermilion Energy Inc. (VET) SEC Filing 40-F Annual report for the fiscal year ending Monday, December 31, 2012

Vermilion Energy Inc.

CIK: 1293135 Ticker: VET

 

 

EXHIBIT 99.1

 

VERMILION ENERGY INC.

 

ANNUAL INFORMATION FORM

 

For the Year Ended December 31, 2012

 

 

Dated March 8, 2013

 

 

 
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

TABLE OF CONTENTS

 

GLOSSARY OF TERMS 4
Conventions 6
Abbreviations 6
Conversion 6
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 7
PRESENTATION OF OIL AND GAS RESERVES AND PRODUCTION INFORMATION 8
Contingent Resources 8
Prospective Resources 9
NON-GAAP MEASURES 9
VERMILION ENERGY inc. 9
General 9
Organizational Structure of the Company 10
Summary Description of the Business 10
History of Vermilion 11
NARRATIVE DESCRIPTION OF THE BUSINESS 12
Business Objectives 12
Description of Properties 12
STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS INFORMATION 14
Reserves and Future Net Revenue 14
Reconciliations of Changes in Reserves 18
Undeveloped Reserves 22
Timing of Initial Undeveloped Reserves Assignment 22
Future Development Costs 23
Oil and Gas Properties and Wells 24
Costs Incurred 24
Exploration and Development Activities 25
Properties with No Attributed Reserves 26
Contingent and Prospective Resources 26
Abandonment and Reclamation Costs 28
Tax Information 29
Production Estimates 29
Production History 30
Marketing 32
ADDITIONAL INFORMATION RESPECTING VERMILION ENERGY INC. 33
Management 33
Common Shares 34
Cash Dividends 34
Dividend Reinvestment Plan 35
Shareholder Rights Plan 36
AUDIT COMMITTEE MATTERS 39
Audit Committee Charter 39
Composition of the Audit Committee 39
External Audit Service Fees 40
MARKET FOR PRICE RANGE AND TRADING VOLUME OF SECURITIES 40
CREDIT RATINGs 40
CONFLICTS OF INTEREST 41
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 41
LEGAL PROCEEDINGS 41
MATERIAL CONTRACTS 41
INTERESTS OF EXPERTS 42
TRANSFER AGENT AND REGISTRAR 42

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

RISK FACTORS 42
Reserve Estimates 42
Uncertainty of Contingent Resource Estimates 42
Uncertainty of Prospective Resource Estimates 43
Volatility of Oil and Natural Gas Prices 43
Changes in Legislation 43
Government Regulations 43
Competition 43
Operational Matters 44
Environmental Concerns 44
Kyoto Protocol and Carbon Tax 44
Discretionary Nature of Dividends 45
Debt Service 45
Changes in Income Tax Laws 45
Depletion of Reserves 45
Net Asset Value 45
Volatility of Market Price of Common Shares 46
Variations in Interest Rates and Foreign Exchange Rates 46
Increase in Operating Costs or Decline in Production Level 46
Acquisition Assumptions 46
Failure to Realize Anticipated Benefits of Prior Acquisitions 46
Additional Financing 47
Potential Conflicts of Interest 47
Accounting Adjustments 47
Market Accessibility 47
ADDITIONAL INFORMATION 47
   
SCHEDULE "A"  
REPORT ON RESERVES DATA BY INDEPENDENT QUALIFIED RESERVES EVALUATOR OR AUDITOR (FORM 51-101F2) 48
SCHEDULE "B"  
REPORT OF MANAGEMENT AND DIRECTORS ON OIL AND GAS DISCLOSURE (FORM 51-101F3) 50
SCHEDULE "C"  
AUDIT COMMITTEE TERMS OF REFERENCE 51

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

GLOSSARY OF TERMS

 

The following are defined terms used in this annual information form:

 

“2003 Arrangement” means the plan of arrangement under the ABCA involving the Trust, Vermilion Resources Ltd., Clear Energy Inc. and Vermilion Acquisition Ltd., which was completed on January 22, 2003;

 

“ABCA” means the Business Corporations Act (Alberta), R.S.A. 2000, c. B-9, as amended, including the regulations promulgated thereunder;

 

“AGCA” means Alberta Gas Cost Allowance;

 

“AIF” means Annual Information Form;

 

“affiliate” when used to indicate a relationship with a person or company, has the same meaning as set forth in the Securities Act (Alberta);

 

“board of directors” or “board” means the board of directors of Vermilion;

 

“CGU’s” means cash generating units and based on managements’ judgement, represents the lowest level at which there is identifiable cash inflows that are largely independent of the cash inflows of other groups of assets or properties;

 

“common shares” means a common share in the capital of the Company;

 

“contingent resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from know accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies;

 

“control” means, with respect to control of a body corporate by a person, the holding (other than by way of security) by or for the benefit of that person of securities of that body corporate to which are attached more than 50% of the votes that may be cast to elect directors of the body corporate (whether or not securities of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency) provided that such votes, if exercised, are sufficient to elect a majority of the board of directors of the body corporate;

 

“Conversion Arrangement” means the plan of arrangement effected on September 1, 2010 under section 193 of the ABCA pursuant to which the Trust converted from an income trust to a corporate structure;

 

“Depletion units” means groups of assets or properties that are within a specific production area and have similar economic lives. Depletion units represent the lowest level of disaggregation for which Vermilion accumulates costs for the purposes of calculating and recording depletion;

 

“dividend” means a dividend paid by Vermilion in respect of the common shares, expressed as an amount per common share;

 

“Dividend Payment Date” means any date that Dividends are distributed to Shareholders, generally being the 15th day of the calendar month following the determination of a Dividend Record Date;

 

“Dividend Record Date” means the last day of each calendar month or such other date as may be determined from time to time by the Company;

 

“DRIP Plan” means the Dividend Reinvestment Plan adopted by the Company;

 

“GLJ” means GLJ Petroleum Consultants Ltd., independent petroleum engineering consultants of Calgary, Alberta;

 

“GLJ Report” means the independent engineering evaluation of certain oil, NGL and natural gas interests of the Company prepared by GLJ dated February 14, 2013 and effective December 31, 2012;

 

“IFRS” means International Financial Reporting Standards;

 

“Income Tax Act” or “Tax Act” means the Income Tax Act (Canada), R.S.C. 1985, c. 1. (5th Supp.), as amended, including the regulations promulgated thereunder;

 

“Meeting” means the annual meeting of Shareholders of the Company to be held on May 1, 2013 (or, if adjourned, such other date on which the meeting is held);

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

“NYSE” means New York Stock Exchange;

 

“PNG” means Petroleum and Natural Gas properties and equipment;

 

“PRRT” means Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia;

 

“prospective resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects;

 

“Rights Plan” means the Shareholder rights plan of the Company;

 

“Senior Unsecured Notes” means the $225 million aggregate principal amount of five year senior unsecured notes of the Company issued February 10, 2011;

 

“Shareholders” means holders from time to time of the Company’s common shares;

 

“Shareholder Rights Plan Agreement” means the Shareholder Rights Plan Agreement dated September 1, 2010 between the Company and Computershare Trust Company of Canada establishing the Rights Plan, as amended or supplemented from time to time;

 

“subsidiary” means, in relation to any person, any body corporate, partnership, joint venture, association or other entity of which more than 50% of the total voting power of common shares or units of ownership or beneficial interest entitled to vote in the election of directors (or members of a comparable governing body) is owned or controlled, directly or indirectly, by such person;

 

“TSX” means the Toronto Stock Exchange;

 

“Trust” means Vermilion Energy Trust, an unincorporated open-ended investment trust governed by the laws of the Province of Alberta that was terminated pursuant to the Conversion Arrangement;

 

“Trust Unit” means units in the capital of the Trust;

 

“Unitholders” means former unitholders of the Trust;

 

“Vermilion” or the “Company” means Vermilion Energy Inc. and where context allows, its consolidated business enterprise, except that a reference to “Vermilion” prior to the date of the Conversion Arrangement means the consolidated business enterprise of the Trust, unless otherwise indicated; and

 

“VRL” means Vermilion Resources Ltd., previously a subsidiary of the corporation;

 

“ZEF” means Zaza Energy France S.A.S.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Conventions

 

Unless otherwise indicated, references herein to "$" or "dollars" are to Canadian dollars. All financial information herein has been presented in Canadian dollars in accordance with GAAP.

 

Abbreviations

 

Oil and Natural Gas Liquids
bbl Barrel
Mbbl thousand barrels
bbl/d barrels per day
NGLs natural gas liquids
Natural Gas
Mcf thousand cubic feet
MMcf million cubic feet
Mcf/d thousand cubic feet per day
MMcf/d million cubic feet per day
MMBtu million British Thermal Units
Other
API American Petroleum Institute
°API An indication of the specific gravity of crude oil measured on the API gravity scale.
  Liquid petroleum with a specified gravity of 28 °API or higher is generally referred to as light crude oil.
boe barrel of oil equivalent
M$ thousand dollars
MM$ million dollars
Mboe 1,000 barrels of oil equivalent
MMboe million barrels of oil equivalent
WTI West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for crude oil of
  standard grade.

 

Conversion

 

The following table sets forth certain standard conversions from Standard Imperial Units to the International System of Units (or metric units).

 

To Convert From   To   Multiply By
Mcf   Cubic metres   28.174
Cubic metres   Cubic feet   35.494
bbls   Cubic metres   0.159
Cubic metres   bbls oil   6.290
Feet   Metres   0.305
Metres   Feet   3.281
Miles   Kilometres   1.609
Kilometres   Miles   0.621
Acres   Hectares   0.405
Hectares   Acres   2.471

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

Certain statements included or incorporated by reference in this annual information form 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 annual information form may include, but are not limited to:

 

·capital expenditures;
·business strategies and objectives;
·estimated reserve quantities and the discounted present value of future net cash flows from such reserves;
·petroleum and natural gas sales;
·future production levels (including the timing thereof) and rates of average annual production growth, estimated contingent resources and prospective resources;
·exploration and development plans;
·acquisition and disposition plans and the timing thereof;
·operating and other expenses, including the payment of future dividends;
·royalty and income tax rates;
·the timing of regulatory proceedings and approvals;
·the timing of first commercial gas from the Corrib field; and
·the estimate of Vermilion’s share of the expected natural gas production from the Corrib field.

 

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 the Company to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally;
·the ability of the Company 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 the Company 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 development activities.

 

Although the Company 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 the Company can give no assurance that such expectations will prove to be correct. Financial outlooks are provided for the purpose of understanding the Company’s financial strength 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 the Company 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 the Company'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, costs and expenses;
·potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
·the Company'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 the Company to add production and reserves through exploration and development activities;
·general economic and business conditions;
·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 the Company; and
·other risks and uncertainties described elsewhere in this annual information form or in the Company's other filings with Canadian securities authorities.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

The forward-looking statements or information contained in this annual information form are made as of the date hereof and the Company 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.

 

PRESENTATION OF OIL AND GAS RESERVES AND PRODUCTION INFORMATION

 

All oil and natural gas reserve information contained in this annual information form has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). The actual oil and natural gas reserves and future production will be greater than or less than the estimates provided in this annual information form. The estimated future net revenue from the production of the disclosed oil and natural gas reserves does not represent the fair market value of these reserves.

 

Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel equivalent of oil. Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas 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.

 

Vermilion retained GLJ to conduct an independent resource evaluation to assess contingent and prospective resources across all of the Company’s key operating regions with an effective date of December 31, 2012 (the "GLJ Resources Assessment"). All contingent and prospective resources evaluated in the GLJ Resources Assessment were deemed economic at the effective date of December 31, 2012.

 

The estimates of volumes of, and the net present value of the future net revenue attributable to, contingent resources and prospective resources in this annual information form are derived from the GLJ Resources Assessment. The GLJ Resources Assessment was prepared in accordance with COGEH and NI 51-101 by GLJ, an independent qualified reserve evaluator.

 

A range of contingent and prospective resources estimates (low, best and high) were prepared by GLJ. See notes 5 to 8 of the tables in the section entitled “Contingent and Prospective Resources” for a description of low estimate, best estimate and high estimate.

 

Contingent Resources

 

"Contingent resources" are not, and should not be confused with, petroleum and natural gas reserves. "Contingent resources" are defined in COGEH as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resource the estimated discovered recoverable quantities associated with a project in the early evaluation stage.

 

The primary contingencies which currently prevent the classification of Vermilion’s contingent resource as reserves include but are not limited to:

 

·preparation of firm development plans, including determination of the specific scope and timing of projects;
·project sanction;
·access to capital markets;
·shareholder and regulatory approvals;
·access to required services and field development infrastructure;
·oil and natural gas prices in Canada and internationally in jurisdictions in which Vermilion operates;
·demonstration of economic viability;
·future drilling program and testing results;
·further reservoir delineation and studies;
·facility design work;
·limitations to development based on adverse topography or other surface restrictions; and
·the uncertainty regarding marketing and transportation of petroleum from development areas.

 

There is no certainty that it will be commercially viable to produce any portion of the contingent resources or that Vermilion will produce any portion of the volumes currently classified as contingent resources. The estimates of contingent resources involve implied assessment, based on certain estimates and assumptions, that the resources described exists in the quantities predicted or estimated and that the resources can be profitably produced in the future. The net present value of the future net revenue from the contingent resources does not necessarily represent the fair market value of the contingent resources. Actual contingent resources (and any volumes that may be reclassified as reserves) and future production therefrom may be greater than or less than the estimates provided herein.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Prospective Resources

 

Prospective resources are not, and should not be confused with, petroleum and natural gas reserves. "Prospective resources" are defined in COGEH as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

 

There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources or that Vermilion will produce any portion of the volumes currently classified as prospective resources. The estimates of prospective resources involve implied assessment, based on certain estimates and assumptions, that the resources described exists in the quantities predicted or estimated and that the resources can be profitably produced in the future. The net present value of the future net revenue from the prospective resources does not necessarily represent the fair market value of the prospective resources. The recovery and resources estimates provided herein are estimates only. Actual prospective resources (and any volumes that may be reclassified as reserves or contingent resources) and future production from such prospective resources may be greater than or less than the estimates provided herein.

 

NON-GAAP MEASURES

 

This annual information form includes non-GAAP measures as further described herein. Management of the Company believes these non-GAAP measures are a useful tool in analyzing operating performance. These measures do not have standardized meanings prescribed by GAAP and, therefore, may not be comparable with the calculations of similar measures for other entities.

 

“Cash dividends per share” represents actual cash dividends paid per share by the Company during the relevant periods.

 

“Netbacks” are per unit of production measures used in operational and capital allocation decisions.

 

“Net dividends” is calculated as dividends declared for a given period less proceeds received by Vermilion pursuant to the dividend reinvestment plan. Dividends both before and after the dividend reinvestment plan are reviewed by management and are assessed as a percentage of fund flows from operations to analyze how much of the cash that is generated by Vermilion is being used to fund dividends.

 

VERMILION ENERGY INC.

 

General

 

Vermilion Energy Inc. is the successor to the Trust, following the completion of the conversion of the Trust from an income trust to a corporate structure by way of a court approved plan of arrangement under the ABCA on September 1, 2010. Pursuant to the Conversion Arrangement, Unitholders exchanged their Trust Units for common shares of the Company on a one-for-one basis and holders of exchangeable shares of VRL received 1.89344 common shares for each exchangeable share held.

 

References to “Vermilion” prior to the date of the Conversion Arrangement are generally references to the consolidated business enterprise of the Trust prior to the date of the Conversion Arrangement, whose business the Company is a successor to as a result of the Conversion Arrangement, as accounted for by “continuity-of-interest” accounting.

 

Vermilion Energy Inc. was incorporated on July 21, 2010 pursuant to the provisions of the ABCA for the purpose of facilitating the Conversion Arrangement.  On January 1, 2013, Vermilion Energy Inc. completed amalgamations with two of its wholly-owned subsidiaries, 1209974 Alberta Ltd. and Vermilion Resources Ltd.  Vermilion Energy Inc. was the resulting entity upon completion of the amalgamations.  The registered and head office of Vermilion Energy Inc. is located at Suite 3500, 520 – 3rd Avenue S.W., Calgary, Alberta, T2P 0R3.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Organizational Structure of the Company

 

The following diagram describes the intercorporate relationships among the Company and each of its material subsidiaries, after giving effect to the amalgamations effective January 1, 2013, where each principal subsidiary was incorporated or formed and the percentage of votes attaching to all voting securities of each subsidiary beneficially owned directly or indirectly by Vermilion. Reference should be made to the appropriate sections of this annual information form for a complete description of the structure of the Company.

 

 

Note:

(1)Vermilion Energy Ireland Limited is the Irish Branch of a Cayman Islands incorporated company.

 

Summary Description of the Business

 

Vermilion Energy Inc.

 

The Company is actively engaged in the business of oil and natural gas exploitation, development, acquisition and production in Australia, Canada, France, Ireland and the Netherlands. The Company’s business plan is to expand its portfolio of organic growth opportunities and pursue its strategic plan that targets modest average annual production growth while maintaining a reliable and growing dividend. Vermilion continues to develop new growth initiatives which target the identification and capture of meaningful unconventional resource related exploration exposure in Canada, Europe and Australia. Where possible, the Company will seek to expand its reserve base through the selective addition of high-quality, long-life reserves with low risk development opportunities.

 

Shareholders receive monthly dividends of the cash flow generated by Vermilion as declared payable by the board of directors of the Company. The Company currently employs a strategy which: (i) provides Shareholders with a competitive annual cash-on-cash yield through monthly cash dividends, (ii) ensures that Vermilion's existing assets are maintained at a level that provides sustainable ongoing cash flow, and (iii) continues to expand the business of the Company through the development of growth opportunities that are intended to provide long-term stable cash flows and be accretive to the existing Shareholders. The Company intends to finance acquisitions through bank financing and, when necessary, the issuance of additional common shares from treasury, while maintaining prudent leverage.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

History of Vermilion

 

The following describes the development of Vermilion's business over the last three completed financial years.

 

On September 1, 2010, Vermilion converted from an income trust to a dividend paying corporation. Approval was granted from the Trust’s Unitholders to the Conversion Arrangement at a special meeting of Unitholders of the Trust held on August 31, 2010.

 

On February 10, 2011, Vermilion issued $225.0 million of senior unsecured notes at par. The notes bear interest at a rate of 6.5% per annum and will mature on February 10, 2016. As direct senior unsecured obligations of Vermilion, the notes rank pari passu with all other present and future unsecured and unsubordinated indebtedness of the Company. Vermilion may, at its option, prior to February 10, 2014, redeem up to 35% of the notes with net proceeds of equity offerings by the Company at a redemption price equal to 106.5% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to the applicable redemption date. Subsequently, Vermilion may, on or after February 10, 2014, redeem all or part of the notes at fixed redemption prices, plus, in each case, accrued and unpaid interest, if any, to the applicable redemption date.

 

On November 28, 2011, Vermilion completed an equity financing of 5,370,000 common shares at a price of $49.00 per common share for gross proceeds of approximately $263 million including the partial exercise of the underwriters’ over-allotment option. The net proceeds were used to reduce a certain amount of outstanding indebtedness under the Company’s credit facility, partially fund the Company's development capital program and prospective acquisitions as well as for general purposes.

 

During 2011, Vermilion completed property acquisitions of various strategic properties that complement existing assets within Vermilion’s core areas. The net cost of these property acquisitions to Vermilion was approximately $50.9 million, of which $38.8 million related to acquisitions in Canada and $12.1 million related to acquisitions in the Netherlands. None of the property acquisitions constituted a “significant acquisition” within the meaning of applicable securities laws.

 

On January 24, 2012, Vermilion announced that the Company, through its wholly-owned subsidiaries, acquired certain working interests in six producing fields located in the Paris and Aquitaine basins in France. Taking into consideration an effective date of January 1, 2011 and customary closing adjustments, Vermilion paid approximately $106 million cash at closing. Vermilion financed this acquisition indirectly through proceeds received from the November 2011 equity issuance. The acquisition did not constitute a “significant acquisition” within the meaning of applicable securities laws.

 

On November 14, 2012, Vermilion announced that the board of directors approved an increase to its monthly dividend by 5.3% to $0.20 per share from $0.19 per share. The increase became effective for the January 2013 dividend paid on February 15, 2013. The dividend increase represents Vermilion’s second increase since initiating a dividend ten years ago. Also, on November 14, 2012 Vermilion announced that it had initiated the process with the NYSE Euronext for a secondary listing of the Company's common shares on the NYSE Euronext's New York Stock Exchange, subject to fulfilling all of the listing requirements of the NYSE. Pending receipt of all applicable exchange and regulatory approvals, the Company expects its common shares will be listed on the NYSE during the first quarter of 2013 under the ticker symbol "VET".

 

On December 27, 2012, Vermilion announced that the Company, through its wholly-owned subsidiaries, acquired 100% of the shares of Zaza Energy France S.A.S. (“ZEF”). Pursuant to the acquisition, Vermilion acquired operating interests covering approximately 24,300 acres with 100% working interests in the Saint Firmin, Chateaurenard, Courtenay, Chuelles, and Charmottes fields in the Paris Basin. Taking into consideration an effective date for the acquisition of October 1, 2012 and customary closing adjustments, Vermilion paid approximately $75 million cash at closing including working capital. Vermilion financed this acquisition through its bank revolving credit facility. The acquisition did not constitute a “significant acquisition” within the meaning of applicable securities laws.

 

On December 31, 2012, pursuant to the terms of the acquisition agreement whereby Vermilion acquired an 18.5% non-operating working interest in the offshore Corrib gas field, Vermilion made an additional payment to the vendor of $134 million (US$135 million).

 

In order to consolidate its Canadian subsidiaries, on January 1, 2013, Vermilion amalgamated with two of its wholly-owned subsidiaries, 1209974 Alberta Ltd. and Vermilion Resources Ltd. Vermilion Energy Inc. was the resulting entity upon completion of the amalgamations. As a result of the forgoing amalgamations, Vermilion became the managing partner of Vermilion Resources.

 

As at January 31, 2013, Vermilion had 375 full time employees of which 183 employees were located in its Calgary head office, 35 employees in its Canadian field offices, 107 employees in France, 17 employees in the Netherlands and 33 employees in Australia.

 

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Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

NARRATIVE DESCRIPTION OF THE BUSINESS

 

Business Objectives

 

The Company is actively engaged in the business of oil and natural gas exploitation, development, acquisition and production in Australia, Canada, France, Ireland and the Netherlands. The Company’s business plan is to expand its portfolio of organic growth opportunities and pursue its strategic plan that targets modest average annual production growth while maintaining a reliable and growing dividend. Vermilion continues to develop new growth initiatives which target the identification and capture of meaningful unconventional resource related exploration exposure in Canada, Europe and Australia. Where possible, the Company will seek to expand its reserve base through the selective addition of high-quality, long-life reserves with low risk development opportunities.

 

In reviewing potential participations or acquisitions, Vermilion will consider a number of factors, including: (a) the present value of the future revenue from such properties from the proved producing, total proved and proved plus probable reserves; (b) the amount of potential for additional reservoir development; (c) whether sufficient infrastructure exists in the prospect to provide for increased activity; (d) the cost of any potential development; (e) investments in properties that exhibit medium to long life reserves and stable production base; and (f) the ability of Vermilion to enhance the value of acquired properties through additional exploitation efforts and additional development drilling. The board of directors of Vermilion may, in its discretion, approve asset or corporate acquisitions or investments that do not conform to these guidelines based upon the board's consideration of the qualitative aspects of the subject properties including risk profile, technical upside, reserve life, asset quality and the Company's business prospects.

 

Description of Properties

 

The following is a description of the oil and natural gas properties, plants, facilities and installations in which Vermilion has an interest and that are material to Vermilion's operations and exploration activities. The production numbers stated refer to Vermilion's working interest share before deduction of Crown, freehold and other royalties. Reserve amounts are stated, before deduction of royalties, as at December 31, 2012, based on forecasted costs and price assumptions as evaluated in the GLJ Report.

 

Canada Assets

 

Vermilion’s production in Canada is located primarily in three areas, all of which are in Alberta: Drayton Valley, Slave Lake and Central Alberta. Vermilion's main gas producing areas are Drayton Valley and Central Alberta, while Slave Lake and the Cardium light oil play in Drayton Valley are the main oil producing areas.

 

Vermilion holds an average working interest of 69% in 387,016 (267,715 net) acres of developed land, 518 (348 net) producing natural gas wells and 380 (243 net) producing oil wells as at December 31, 2012. Vermilion operates five natural gas plants and has an ownership interest in five additional plants, resulting in combined gross processing capacity of over 89 MMcf/d. In addition, Vermilion has capacity of over 20,500 bbl/d of oil in five operated oil batteries including a 15,000 bbl/d oil battery that handles Cardium production. The 15,000 bbl/d oil battery commenced operations August 1, 2011 and as of December 2012 was processing approximately 7,885 bbl/d of oil which represents 94% of Vermilion's total Cardium oil production.

 

Risks and uncertainties associated with weather conditions can shorten the winter drilling season and can impact the spring and summer drilling programs, potentially resulting in increased costs or reduced production.

 

For a discussion of the competitive conditions affecting Vermilion’s business, refer to "Competition" in the Risk Factors section of this AIF.

 

For the year ended December 31, 2012, production in Canada averaged approximately 37.5 MMcf/d of natural gas and 8,891 bbl/d of oil and NGL. Sales of natural gas in 2012 were approximately $34.6 million (2011 - $60.6 million) and sales from oil and NGLs were approximately $269.6 million (2011 - $199.2 million).

 

The GLJ Report assigned 40,700 Mboe of total proved reserves and 67,770 Mboe of proved plus probable reserves to Vermilion's properties located in Canada.

 

12
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

France Assets

 

Vermilion's main producing areas in France are located in the Aquitaine Basin which is southwest of Bordeaux, France and in the Paris Basin, located just east of Paris. Vermilion's assets in France are primarily oil producing properties. The two major fields in the Paris Basin area are Champotran and Chaunoy. The two major fields in the Aquitaine Basin are Parentis and Cazaux. In January, 2012 Vermilion, through its wholly-owned subsidiaries, acquired certain working interests in six producing fields located in the Paris and Aquitaine basins in France. Pursuant to the acquisition, Vermilion acquired the remaining working interests in three fields in which it previously held interests (Itteville, Vert Le Grand and Vic Bihl) and working interests in three new fields (Vert Le Petit and La Croix Blanche at 100% working interest and Dommartin-Lettrée at 56% working interest). Effective October 1, 2012 Vermilion, through its wholly owned subsidiaries, acquired 100% of the shares of ZEF and operating interests covering approximately 24,300 acres with 100% working interests in the Saint Firmin, Chateaurenard, Courtenay, Chuelles, and Charmottes fields in the Paris Basin.  Vermilion now operates 13 oil batteries with current producing capacities of 14,159 bbl/d. Vermilion holds 96% working interest in 226,610 (217,358 net) acres of developed land in the Aquitaine and Paris Basins. Vermilion had 317 (312 net) producing oil wells in France as at December 31, 2012.

 

Risks and uncertainties associated with well approvals can impact the drilling programs, potentially resulting in delays or reduced production.

 

For a discussion of the competitive conditions affecting Vermilion business, refer to "Competition" in the Risk Factors section of this AIF.

 

For the year ended December 31, 2012, production in France averaged approximately 9,952 bbl/d of oil and 3.6 MMcf/d of natural gas. Sales from oil in 2012 were approximately $374.2 million (2011 - $319.9 million) and sales from natural gas were approximately $14.2 million (2011 - $4.2 million).

 

The GLJ Report assigned 32,746 Mboe of total proved reserves and 47,012 Mboe of proved plus probable reserves to Vermilion's properties located in France.

 

Netherlands Assets

 

Vermilion's Netherlands assets consist of eight onshore concessions and one offshore concession located in the northern part of the country. Production consists solely of natural gas with a small amount of related condensate. The assets include three operated gas treatment centres that have a combined total capacity of 240 MMcf/d. Vermilion holds an approximate 74% working interest over the nine concessions in 49,337 (36,517 net) acres of developed land and 57 (43 net) producing gas wells as at December 31, 2012.

 

Risks and uncertainties associated with drilling and production permits can impact drilling programs and production timing, potentially resulting in increased costs or reduced production.

 

For a discussion of the competitive conditions affecting Vermilion’s business, refer to "Competition" in the Risk Factors section of this AIF.

 

For the year ended December 31, 2012, Vermilion's production in the Netherlands averaged 67 bbl/d of NGLs and 34.1 MMcf/d of natural gas. Sales in 2012 of natural gas were approximately $121.1 million (2011 - $114.2 million) and sales from NGLs were approximately $2.4 million (2011 - $2.0 million).

 

The GLJ Report assigned 6,163 Mboe of total proved reserves and 11,770 Mboe of proved plus probable reserves to Vermilion's properties located in the Netherlands.

 

Australia Assets

 

Vermilion's Australia assets consist of a 100% operated interest in an offshore oil field located on Western Australia's northwest shelf. The platform has a current producing capacity of 162,000 bbl/d of total fluid. Vermilion holds a 100% working interest in the Wandoo block, which is comprised of 59,553 acres and is considered a production license. All acreage therefore is classified as producing.

 

Western Australia’s northwest shelf is subject to seasonal disruptions caused by cyclones. During cyclone season (December to March) the Company may have to reduce production rates at its offshore facilities as a result of the inability to offload to tankers due to bad weather. Cyclones may also cause production shut-ins due to the evacuation of staff or damage to equipment on the platform.

 

For a discussion of the competitive conditions affecting Vermilion’s business, refer to "Competition" in the Risk Factors section of this AIF.

 

For the year ended December 31, 2012, Vermilion's production in Australia averaged 6,360 bbl/d of oil. Sales in 2012 from oil were approximately $267.0 million (2011 - $331.4 million).

 

13
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

The GLJ Report assigned 10,327 Mboe of total proved reserves and 17,143 Mboe of proved plus probable reserves to Vermilion's property located in Australia.

 

Ireland Assets

 

Vermilion holds an 18.5% non-operating interest in the offshore Corrib gas field located off the northwest coast of Ireland. Production from Corrib is expected to increase Vermilion’s volumes by approximately 55 MMcf (9,000 boe/d) once the field reaches peak production. Vermilion acquired its 18.5% working interest in the project on July 30, 2009, comprised of seven offshore wells, both offshore and onshore pipeline segments as well as a natural gas processing facility. At the time of the acquisition most of the key components of the project, with the exception of the onshore pipeline, were either complete or in the latter stages of development. In 2011, approvals and permissions were granted for the onshore gas pipeline and tunneling commenced on December 16, 2012. Vermilion expects to continue to invest capital in this project over the next two years with approximately $85 million budgeted for 2013.  The project is anticipated to produce first gas toward the end of 2014 and reach peak production levels by mid-2015.

 

The GLJ Report assigned 15,326 Mboe of total proved reserves and 21,172 Mboe of proved plus probable reserves to Vermilion's property located in Ireland.

 

STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS INFORMATION

 

Reserves and Future Net Revenue

 

The following is a summary of the oil and natural gas reserves and the value of future net revenue of Vermilion as evaluated by GLJ in a report dated February 14, 2013 with an effective date of December 31, 2012. Pricing used in the forecast price evaluations is set forth in the notes to the tables.

 

Reserves and other oil and gas information contained in this section is effective December 31, 2012 unless otherwise stated.

 

All evaluations of future net production revenue set forth in the tables below are stated after overriding and lessor royalties, Crown royalties, freehold royalties, mineral taxes, direct lifting costs, normal allocated overhead and future capital investments, including abandonment and reclamation obligations. Future net production revenues estimated by the GLJ Report do not represent the fair market value of the reserves. Other assumptions relating to the costs, prices for future production and other matters are included in the GLJ Report. There is no assurance that the future price and cost assumptions used in the GLJ Report will prove accurate and variances could be material.

 

Reserves for Australia, Canada, France, Ireland and the Netherlands are established using deterministic methodology. Total proved reserves are established at the 90 percent probability (P90) level. There is a 90 percent probability that the actual reserves recovered will be equal to or greater than the P90 reserves. Total proved plus probable reserves are established at the 50 percent probability (P50) level. There is a 50 percent probability that the actual reserves recovered will be equal to or greater than the P50 reserves.

 

The Report on Reserves Data by Independent Qualified Reserves Evaluator in Form 51-101F2 and the Report of Management and Directors on Oil and Gas Disclosure in Form 51-101F3 are contained in Schedules "A" and "B", respectively.

 

The following tables provide reserves data and a breakdown of future net revenue by component and production group using forecast prices and costs. For Canada, the tables following include AGCA.

 

The following tables may not total due to rounding.

 

14
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Oil and Gas Reserves - Based on Forecast Prices and Costs (8)

 

   Light and Medium Oil   Heavy Oil   Natural Gas   Natural Gas Liquids   BOE 
   Gross (1)   Net (1)   Gross (1)   Net (1)   Gross (1)   Net (1)   Gross (1)   Net (1)   Gross   Net 
   (Mbbl)   (Mbbl)   (Mbbl)   (Mbbl)   (MMcf)   (MMcf)   (Mbbl)   (Mbbl)   (Mboe)   (Mboe) 
Proved Developed Producing (2) (5)                                                  
Australia   10,327    10,327    -    -    -    -    -    -    10,327    10,327 
Canada   9,521    7,890    17    16    66,035    59,340    2,360    1,564    22,905    19,361 
France   30,898    28,962    -    -    1,377    1,336    -    -    31,127    29,184 
Ireland   -    -    -    -    -    -    -    -    -    - 
Netherlands   -    -    -    -    20,778    20,778    33    33    3,496    3,496 
Total Proved Developed Producing   50,746    47,179    17    16    88,190    81,453    2,393    1,597    67,855    62,368 
Proved Developed Non-Producing (2) (6)                                                  
Australia   -    -    -    -    -    -    -    -    -    - 
Canada   549    478    -    -    7,032    6,424    154    114    1,875    1,662 
France   602    576    -    -    -    -    -    -    602    576 
Ireland   -    -    -    -    -    -    -    -    -    - 
Netherlands   -    -    -    -    15,828    15,828    29    29    2,667    2,667 
Total Proved Developed Non-Producing   1,151    1,054    -    -    22,860    22,253    184    143    5,145    4,906 
Proved Undeveloped (2) (7)                                                  
Australia   -    -    -    -    -    -    -    -    -    - 
Canada   8,045    7,172    -    -    40,947    38,215    1,051    866    15,920    14,407 
France   1,017    984    -    -    -    -    -    -    1,017    984 
Ireland   -    -    -    -    91,954    91,954    -    -    15,326    15,326 
Netherlands   -    -    -    -    -    -    -    -    -    - 
Total Proved Undeveloped   9,062    8,157    -    -    132,901    130,170    1,051    866    32,263    30,717 
Proved (2)                                                  
Australia   10,327    10,327    -    -    -    -    -    -    10,327    10,327 
Canada   18,115    15,540    17    16    114,014    103,980    3,565    2,544    40,700    35,430 
France   32,516    30,522    -    -    1,377    1,336    -    -    32,746    30,744 
Ireland   -    -    -    -    91,954    91,954    -    -    15,326    15,326 
Netherlands   -    -    -    -    36,606    36,606    62    62    6,163    6,163 
Total Proved   60,959    56,389    17    16    243,951    233,875    3,627    2,606    105,262    97,991 
Probable (3)                                                  
Australia   6,815    6,815    -    -    -    -    -    -    6,816    6,816 
Canada   14,099    11,888    3    3    65,654    60,267    2,026    1,522    27,070    23,457 
France   14,263    13,392    -    -    23    23    -    -    14,266    13,396 
Ireland   -    -    -    -    35,078    35,078    -    -    5,846    5,846 
Netherlands   -    -    -    -    33,277    33,277    60    60    5,607    5,607 
Total Probable   35,177    32,095    3    3    134,033    128,646    2,086    1,582    59,605    55,121 
Proved Plus Probable (2) (3)                                                  
Australia   17,143    17,143    -    -    -    -    -    -    17,143    17,143 
Canada   32,214    27,428    20    19    179,668    164,247    5,591    4,066    67,770    58,887 
France   46,779    43,914    -    -    1,401    1,358    -    -    47,012    44,140 
Ireland   -    -    -    -    127,033    127,033    -    -    21,172    21,172 
Netherlands   -    -    -    -    69,883    69,883    123    123    11,770    11,770 
Total Proved Plus Probable   96,136    88,484    20    19    377,984    362,521    5,713    4,188    164,867    153,111 

 

 

15
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Net Present Values of Future Net Revenue - Based on Forecast Prices and Costs (8)

 

   Before Deducting Future Income Taxes Discounted At   After Deducting Future Income Taxes Discounted At 
(M$)  0%   5%   10%   15%   20%   0%   5%   10%   15%   20% 
Proved Developed Producing (2) (5)                                                  
Australia   494,122    448,134    409,522    376,948    349,281    243,707    220,036    200,192    183,496    169,361 
Canada   720,151    571,011    473,635    405,829    356,227    720,151    571,011    473,635    405,829    356,227 
France   1,840,380    1,360,328    1,096,420    929,750    814,095    1,346,767    1,007,535    815,310    691,887    605,409 
Ireland   -    -    -    -    -    -    -    -    -    - 
Netherlands   95,859    96,540    95,068    92,801    90,287    59,351    61,232    60,854    59,590    57,997 
Total Proved Developed Producing   3,150,512    2,476,013    2,074,645    1,805,329    1,609,890    2,369,977    1,859,814    1,549,991    1,340,802    1,188,995 
Proved Developed Non-Producing (2) (6)                                                  
Australia   -    -    -    -    -    -    -    -    -    - 
Canada   58,017    45,252    37,604    32,430    28,672    58,017    45,252    37,604    32,430    28,672 
France   36,048    26,937    21,530    17,961    15,415    23,500    17,340    13,696    11,299    9,598 
Ireland   -    -    -    -    -    -    -    -    -    - 
Netherlands   127,942    105,445    89,847    78,497    69,903    92,674    73,423    60,477    51,329    44,592 
Total Proved Developed Non-Producing   222,007    177,634    148,982    128,887    113,989    174,191    136,015    111,777    95,058    82,861 
Proved Undeveloped (2) (7)                                                  
Australia   -    -    -    -    -    -    -    -    -    - 
Canada   427,998    272,807    176,581    113,758    70,957    426,312    272,031    176,211    113,575    70,863 
France   62,306    35,200    23,126    15,933    11,043    40,767    21,078    12,160    6,890    3,377 
Ireland   596,255    421,845    300,004    212,839    149,179    596,255    421,845    300,004    212,839    149,179 
Netherlands   -    -    -    -    -    -    -    -    -    - 
Total Proved Undeveloped   1,086,558    729,852    499,712    342,531    231,178    1,063,333    714,953    488,375    333,305    223,419 
Proved (2)                                                  
Australia   494,122    448,134    409,522    376,948    349,281    243,707    220,036    200,192    183,496    169,361 
Canada   1,206,166    889,070    687,821    552,017    455,855    1,204,480    888,294    687,450    551,834    455,762 
France   1,938,734    1,422,465    1,141,077    963,644    840,552    1,411,034    1,045,952    841,167    710,076    618,385 
Ireland   596,255    421,845    300,004    212,839    149,179    596,255    421,845    300,004    212,839    149,179 
Netherlands   223,801    201,985    184,915    171,298    160,190    152,025    134,656    121,331    110,919    102,589 
Total Proved   4,459,077    3,383,499    2,723,339    2,276,748    1,955,057    3,607,500    2,710,782    2,150,144    1,769,165    1,495,276 
Probable (3)                                                  
Australia   358,056    294,555    246,961    210,946    183,257    160,229    127,615    103,409    85,320    71,604 
Canada   1,003,214    617,181    410,603    289,652    213,464    758,875    475,240    323,042    232,898    175,146 
France   1,043,805    566,413    365,741    259,204    194,393    680,950    364,010    229,354    157,906    114,676 
Ireland   343,183    221,294    148,593    103,454    74,378    343,183    221,294    148,593    103,454    74,378 
Netherlands   290,794    215,925    171,706    143,092    123,206    161,323    119,036    94,056    77,928    66,768 
Total Probable   3,039,051    1,915,368    1,343,605    1,006,348    788,698    2,104,560    1,307,195    898,454    657,506    502,572 
Proved Plus Probable (2) (3)                                                  
Australia   852,178    742,689    656,483    587,895    532,539    403,936    347,650    303,601    268,816    240,965 
Canada   2,209,380    1,506,251    1,098,424    841,669    669,319    1,963,355    1,363,534    1,010,492    784,732    630,909 
France   2,982,538    1,988,878    1,506,818    1,222,848    1,034,945    2,091,984    1,409,963    1,070,520    867,983    733,061 
Ireland   939,437    643,138    448,598    316,293    223,556    939,437    643,138    448,598    316,293    223,556 
Netherlands   514,595    417,910    356,621    314,390    283,396    313,348    253,692    215,387    188,847    169,357 
Total Proved Plus Probable   7,498,128    5,298,866    4,066,944    3,283,095    2,743,755    5,712,060    4,017,977    3,048,598    2,426,671    1,997,848 

 

Total Future Net Revenue (Undiscounted) Based on Forecast Prices and Costs (8)

 

(M$)  Revenue   Royalties   Operating
Costs
   Capital
Development
Costs
   Abandonment
and
Reclamation
Costs
   Future Net
Revenue
Before
Income
Taxes
   Future
Income
Taxes
   Future Net
Revenue
After
Income
Taxes
 
Proved (2)                                        
Australia   1,124,862    -    561,774    39,302    29,665    494,122    250,415    243,707 
Canada   2,654,946    350,011    650,972    412,269    35,528    1,206,166    1,686    1,204,480 
France   3,377,006    208,626    962,343    92,573    174,730    1,938,734    527,700    1,411,034 
Ireland   983,693    -    156,907    221,938    8,594    596,255    -    596,255 
Netherlands   388,643    -    114,058    12,490    38,294    223,801    71,776    152,025 
Total Proved   8,529,150    558,637    2,446,054    778,571    286,811    4,459,077    851,576    3,607,500 
Proved Plus Probable (2) (3)                                        
Australia   1,898,680    -    902,469    107,302    36,732    852,178    448,242    403,936 
Canada   4,663,789    632,948    1,026,259    748,323    46,880    2,209,380    246,025    1,963,355 
France   5,000,274    309,459    1,303,425    195,458    209,392    2,982,538    890,555    2,091,984 
Ireland   1,381,321    -    210,825    221,938    9,120    939,437    -    939,437 
Netherlands   767,437    -    182,705    24,420    45,717    514,595    201,247    313,348 
Total Proved Plus Probable   13,711,501    942,407    3,625,684    1,297,440    347,842    7,498,128    1,786,068    5,712,060 

 

16
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Future Net Revenue by Production Group Based on Forecast Prices and Costs (8)

 

  

Future Net Revenue

Before Income Taxes (1)

(Discounted at 10% Per Year)

   Unit Value 
Proved Developed Producing   (M$)    ($/boe) 
Light and medium oil (2)   1,848,495    37.05 
Natural gas (3)   218,929    19.46 
Non-conventional oil and gas activities   7,221    5.91 
Total Proved Developed Producing   2,074,645    33.26 
Proved Developed Non-Producing          
Light and medium oil (2)   52,002    40.53 
Natural gas (3)   94,969    30.44 
Non-conventional oil and gas activities   2,010    4.00 
Total Proved Developed Non-Producing   148,982    30.37 
Proved Undeveloped          
Light and medium oil (2)   172,789    15.91 
Natural gas (3)   320,842    17.67 
Non-conventional oil and gas activities   6,081    3.58 
Total Proved Undeveloped   499,712    16.27 
Proved          
Light and medium oil (2)   2,073,743    33.43 
Natural gas (3)   634,291    19.50 
Non-conventional oil and gas activities   15,305    4.47 
Total Proved   2,723,339    27.79 
Probable          
Light and medium oil (2)   969,797    26.39 
Natural gas (3)   366,288    22.16 
Non-conventional oil and gas activities   7,521    4.08 
Total Probable   1,343,605    24.38 
Proved Plus Probable          
Light and medium oil (2)   3,043,586    30.81 
Natural gas (3)   1,000,532    20.39 
Non-conventional oil and gas activities   22,826    4.33 
Total Proved Plus Probable   4,066,944    26.56 

 

Notes:

(1)Other company revenue and costs not related to a specific production group have been allocated proportionately to production groups. Unit values are based on Company Net Reserves. Net present values of reserves categories are an approximation based on major products.
(2)Including solution gas and other by-products.
(3)Including by-products but excluding solution gas.

 

17
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

Forecast Prices used in Estimates (8)

 

   Light and Medium Crude Oil   Crude Oil   Natural Gas
Canada
   Natural Gas
France
   Natural Gas
Netherlands
   Natural Gas
Liquids
   Inflation
Rate
   Exchange
Rate
 
Year  WTI
Cushing
Oklahoma
($US/bbl)
  

Edmonton

Par Price

40o API

($Cdn/bbl)

  

Cromer

Medium

29.3o API

($Cdn/bbl)

   Brent Blend
FOB
North Sea
($US/bbl)
   AECO
Gas Price
($Cdn/MMBtu)
   National
Balancing
Point
(UK)
   Gas Price
($Cdn/Mcf)
   FOB
Field Gate
($Cdn/bbl)
   Percent
Per Year
   ($US/$Cdn) 
2012   94.10    86.86    81.56    111.60    2.45    9.37    9.70    65.42    1.6    1.001 
Forecast                                                  
2013   90.00    85.00    79.90    105.00    3.38    9.13    9.68    65.38    2.0    1.000 
2014   92.50    91.50    84.18    102.50    3.83    9.32    9.88    71.37    2.0    1.000 
2015   95.00    94.00    86.48    102.50    4.28    9.76    10.35    75.51    2.0    1.000 
2016   97.50    96.50    88.78    102.50    4.72    10.25    10.86    77.52    2.0    1.000 
2017   97.50    96.50    88.78    100.00    4.95    10.00    10.60    77.52    2.0    1.000 
Thereafter   2.0%   2.0%   2.0%   2.0%   2.0%   2.0%   2.0%   2.0%   2.0%   1.000 

 

All forecast prices in the table above provided by GLJ. For 2012, the price of Vermilion’s natural gas in the Netherlands was based on pricing established by GasTerra, a state owned entity which purchases all natural gas produced by Vermilion in the Netherlands. For 2012, the natural gas price in the Netherlands was calculated using a trailing average of Dated Brent and the natural gas prices from European trading hubs. France natural gas production was benchmarked to National Balancing Point (UK).  The benchmark price for Australia and France crude oil was Dated Brent. The benchmark price for Canadian crude oil was Edmonton Par and Canadian natural gas was priced against AECO. For the year ended December 31, 2012, the average realized sales prices before hedging were $117.03 per bbl (Australia) and $107.67 per bbl (France) for Brent-based crude oil, $82.84 per bbl for Canadian-based crude oil and NGLs, $9.81 per Mcf for European natural gas and $2.52 per Mcf for Canadian natural gas.

 

Reconciliations of Changes in Reserves

 

The following tables set forth a reconciliation of the changes in Vermilion's gross light and medium crude oil, heavy oil and associated and non-associated gas (combined) reserves as at December 31, 2012 compared to such reserves as at December 31, 2011 based on the forecast price and cost assumptions set forth in note 8 under the heading "Statement of Reserves Data and Other Oil and Gas Information – Forecast Prices used in Estimates".

 

Reconciliation of Company Gross Reserves by Principal Product Type - Based on Forecast Prices and Costs

 

AUSTRALIA  Total Oil   Light and Medium Oil   Heavy Oil   Natural Gas Liquids 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
 
At December 31, 2011   12,697    4,800    17,497    12,697    4,800    17,497    -    -    -    -    -    - 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    2,000    2,000    -    2,000    2,000    -    -    -    -    -    - 
Technical Revisions   53    36    89    53    36    89    -    -    -    -    -    - 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   (95)   (20)   (115)   (95)   (20)   (115)   -    -    -    -    -    - 
Production   (2,328)   -    (2,328)   (2,328)   -    (2,328)   -    -    -    -    -    - 
At December 31, 2012   10,327    6,816    17,143    10,327    6,816    17,143    -    -    -    -    -    - 

 

   Total Gas   Conventional Natural Gas   Coal Bed Methane   BOE 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(Mboe)
   Probable
(Mboe)
   Proved Plus
Probable
(Mboe)
 
At December 31, 2011   -    -    -    -    -    -    -    -    -    12,697    4,800    17,497 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    -    -    -    -    -    -    -    -    -    2,000    2,000 
Technical Revisions   -    -    -    -    -    -    -    -    -    53    36    89 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    (95)   (20)   (115)
Production   -    -    -    -    -    -    -    -    -    (2,328)   -    (2,328)
At December 31, 2012   -    -    -    -    -    -    -    -    -    10,327    6,816    17,143 

 

18
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

CANADA  Total Oil   Light and Medium Oil   Heavy Oil   Natural Gas Liquids 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
 
At December 31, 2011   15,972    14,038    30,010    15,953    14,035    29,988    19    3    22    3,358    1,662    5,020 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   3,568    800    4,368    3,568    800    4,368    -    -    -    489    331    820 
Technical Revisions   1,395    (736)   659    1,393    (736)   657    2    -    2    169    33    202 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    -    -    - 
Production   (2,803)   -    (2,803)   (2,799)   -    (2,799)   (4)   -    (4)   (451)   -    (451)
At December 31, 2012   18,132    14,102    32,234    18,115    14,099    32,214    17    3    20    3,565    2,026    5,591 

 

   Total Gas   Conventional Natural Gas   Coal Bed Methane   BOE 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(Mboe)
   Probable
(Mboe)
   Proved Plus
Probable
(Mboe)
 
At December 31, 2011   116,411    58,525    174,936    91,493    48,764    140,257    24,918    9,761    34,679    38,732    25,454    64,186 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   12,449    7,178    19,627    12,449    7,178    19,627    -    -    -    6,132    2,327    8,459 
Technical Revisions   2,132    (433)   1,699    102    (2,229)   (2,127)   2,030    1,796    3,826    1,920    (775)   1,145 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   (3,252)   384    (2,868)   -    -    -    (3,252)   384    (2,868)   (542)   64    (478)
Production   (13,726)   -    (13,726)   (12,066)   -    (12,066)   (1,660)   -    (1,660)   (5,542)   -    (5,542)
At December 31, 2012   114,014    65,654    179,668    91,978    53,713    145,691    22,036    11,941    33,977    40,700    27,070    67,770 

 

FRANCE  Total Oil   Light and Medium Oil   Heavy Oil   Natural Gas Liquids 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
 
At December 31, 2011   24,127    11,801    35,928    24,127    11,801    35,928    -    -    -    -    -    - 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   106    130    236    106    130    236    -    -    -    -    -    - 
Technical Revisions   1,089    268    1,357    1,089    268    1,357    -    -    -    -    -    - 
Acquisitions   10,836    2,064    12,900    10,836    2,064    12,900    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    -    -    - 
Production   (3,642)   -    (3,642)   (3,642)   -    (3,642)   -    -    -    -    -    - 
At December 31, 2012   32,516    14,263    46,779    32,516    14,263    46,779    -    -    -    -    -    - 

 

   Total Gas   Conventional Natural Gas   Coal Bed Methane   BOE 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(Mboe)
   Probable
(Mboe)
   Proved Plus
Probable
(Mboe)
 
At December 31, 2011   596    19    615    596    19    615    -    -    -    24,226    11,805    36,031 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    -    -    -    -    -    -    -    -    106    130    236 
Technical Revisions   1,088    5    1,093    1,088    5    1,093    -    -    -    1,271    267    1,538 
Acquisitions   1,007    -    1,007    1,007    -    1,007    -    -    -    11,004    2,064    13,068 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    -    -    - 
Production   (1,314)   -    (1,314)   (1,314)   -    (1,314)   -    -    -    (3,861)   -    (3,861)
At December 31, 2012   1,377    24    1,401    1,377    24    1,401    -    -    -    32,746    14,266    47,012 

 

19
 

 

Vermilion Energy Inc. AIF for the year ended December 31, 2012 – Exhibit 99.1

 

IRELAND  Total Oil   Light and Medium Oil   Heavy Oil   Natural Gas Liquids 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
 
At December 31, 2011   -    -    -    -    -    -    -    -    -    -    -    - 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    -    -    -    -    -    -    -    -    -    -    - 
Technical Revisions   -    -    -    -    -    -    -    -    -    -    -    - 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    -    -    - 
Production   -    -    -    -    -    -    -    -    -    -    -    - 
At December 31, 2012   -    -    -    -    -    -    -    -    -    -    -    - 

 

   Total Gas   Conventional Natural Gas   Coal Bed Methane   BOE 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(Mboe)
   Probable
(Mboe)
   Proved Plus
Probable
(Mboe)
 
At December 31, 2011   91,991    12,968    104,959    91,991    12,968    104,959    -    -    -    15,332    2,161    17,493 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    -    -    -    -    -    -    -    -    -    -    - 
Technical Revisions   -    22,074    22,074    -    22,074    22,074    -    -    -    -    3,679    3,679 
Acquisitions   -    -    -    -    -    -    -    -    -    -    -    - 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   (37)   37    -    (37)   37    -    -    -    -    (6)   6    - 
Production   -    -    -    -    -    -    -    -    -    -    -    - 
At December 31, 2012   91,954    35,079    127,033    91,954    35,079    127,033    -    -    -    15,326    5,846    21,172 

 

NETHERLANDS  Total Oil   Light and Medium Oil   Heavy Oil   Natural Gas Liquids 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
   Proved
(Mbbl)
   Probable
(Mbbl)
   Proved Plus
Probable
(Mbbl)
 
At December 31, 2011   -    -    -    -    -    -    -    -    -    51    56    107 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   -    -    -    -    -    -    -    -    -    6    4    10 
Technical Revisions   -    -    -    -    -    -    -    -    -    29    (2)   27 
Acquisitions   -    -    -    -    -    -    -    -    -    -    2    2 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors   -    -    -    -    -    -    -    -    -    -    -    - 
Production   -    -    -    -    -    -    -    -    -    (24)   -    (24)
At December 31, 2012   -    -    -    -    -    -    -    -    -    62    61    123 

 

<
   Total Gas   Conventional Natural Gas   Coal Bed Methane   BOE 
Proved (2) Probable (3) P+P (2) (3)
Factors
  Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(MMcf)
   Probable
(MMcf)
   Proved Plus
Probable
(MMcf)
   Proved
(Mboe)
   Probable
(Mboe)
   Proved Plus
Probable
(Mboe)
 
At December 31, 2011   32,768    32,740    65,508    32,768    32,740    65,508    -    -    -    5,512    5,513    11,025 
Discoveries   -    -    -    -    -    -    -    -    -    -    -    - 
Extensions & Improved Recovery   3,333    3,633    6,966    3,333    3,633    6,966    -    -    -    562    610    1,172 
Technical Revisions   12,134    (3,265)   8,869    12,134    (3,265)   8,869    -    -    -    2,052    (547)   1,505 
Acquisitions   854    169    1,023    854    169    1,023    -    -    -    142    31    173 
Dispositions   -    -    -    -    -    -    -    -    -    -    -    - 
Economic Factors