DBRS Updates Report on Vermilion Energy Inc.

DBRS has updated its report on Vermilion Energy Inc. (Vermilion or the Company). The credit quality of the Company is based on (1) its strong financial profile with a focus on reinvestment, (2) internationally diversified operations and (3) good growth prospects, mainly tied to crude oil pricing. Despite these strengths, the Company’s rating is limited by (1) the relatively small scale of its operations, (2) relatively high operating costs, and (3) increased risks associated with offshore drilling operations.

The Company has benefited from strong crude oil and international natural gas pricing, which have allowed it to maintain its strong financial metrics while increasing production volumes favourably for the past five years. For March 31, 2012, adjusted debt-to-capital of 23.6% and adjusted debt-to-cash flow of 0.79 times (x) improved from 2011, providing strong support for the current rating category. Vermilion has also shown its commitment to maintaining a sound credit profile by prefunding the acquisition of assets in France and the final payment for their interest in Corrib operations through an equity issuance of $263 million in late 2011.

Vermilion has increased its 2012 capital expenditure (capex) level to fund growth based on Q1 results. For 2012, DBRS expects the Company to be cash-flow neutral, as operating cash flow for the year is expected to fund the majority of expected capex of $450 million and dividends. Should the commodity pricing environment decline, the Company is expected to have sufficient flexibility to curtail capex should cash flow be lower than expected in order to maintain metrics at the BB (low) level.

The Company is targeting production as growing to 50,000 boe/d (gross) by 2015. As such, capex levels are expected to remain slightly elevated for the near term. This production growth will be underpinned by spending on light oil in the Cardium, in Canada, as well as production at the Corrib natural gas operation on offshore Ireland (9,000 boe/d to Vermilion).

Notes:
All figures are in Canadian dollars unless otherwise noted.
The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.