Vermilion Energy has entered into an arrangement agreement  to acquire Westbrick Energy, a privately held oil and gas company operating in the Deep Basin, for total consideration of $1.075 billion by way of a plan of arrangement, expected to close in Q1 2025(1).

"The strategic acquisition of Westbrick represents a significant step forward in Vermilion's North American high-grading initiative to increase operational scale and enhance full-cycle margins in the liquids-rich Deep Basin," commented Dion Hatcher, President and CEO of Vermilion. "The Deep Basin is an area Vermilion has been operating in for nearly three decades and is currently the largest producing asset in the Company. The Acquisition adds 50,000 boe/d of stable production and approximately 1.1 million (770,000 net) acres of land from which Vermilion has identified over 700 drilling locations, providing a robust inventory to keep production flat for over 15 years while generating significant free cash flow to enhance the Company's long-term return of capital framework."

The Acquisition enhances depth and quality of Vermilion's Deep Basin inventory and complements the Company's high-growth, liquids-rich Montney asset. Vermilion's Canadian liquids-rich gas assets, combined with over 100 mmcf/d of high-netback, low-decline European natural gas production provides the Company with a premium realized natural gas price. Vermilion is committed to strategically growing its international assets both organically, as demonstrated by recent successes in Germany and Croatia, and via acquisitions. In the near term, the Company will focus on operational execution, debt reduction, return of capital, and further high-grading of assets within its portfolio, including non-core asset sales, to enhance long-term shareholder value.

Acquisition Highlights

• Approximately 1.1 million (770,000 net) acres of land and four operated gas plants with total capacity of 102 mmcf/d in the southeast portion of the Deep Basin trend in Alberta. This footprint is contiguous and complementary to Vermilion's legacy Deep Basin assets providing significant operational and financial synergies, including: capital efficiency improvements, infrastructure optimization, gas marketing opportunities, and other corporate synergies. These synergies have not been factored into the economic evaluation but are expected to be realized over time. The Acquisition excludes undeveloped Duvernay rights on approximately 300,000 (290,000 net) acres of land which will be retained by the shareholders of Westbrick.
• Stable annual production of 50,000 boe/d (75% gas and 25% liquids) expected in 2025(2), based on Vermilion's development plans. This production level represents 5% year-over-year growth and is forecast to generate more than $110 million of annual free cash flow ("FCF")(2,4) based on forward commodity prices(5). Revenue from the acquired assets will be derived approximately 50% from liquids and 50% from gas. In conjunction with the Acquisition, Vermilion plans to actively and opportunistically hedge gas production to mitigate financial risk.
• 2025E annual net operating income of $275 million based on forward prices(5) translates into an NOI multiple of approximately 3.9x. The multiple compresses to 3.3x in 2026 as net operating income is forecast to increase to $330 million based on forward pricing(5).
• Significant, high-quality drilling inventory adds over 700 locations in the Ellerslie, Notikewin, Rock Creek, Falher, Cardium, Wilrich and Niton formations, with half-cycle IRRs ranging from 40% to over 100% based on estimates provided by McDaniel & Associates Consultants Ltd ("McDaniel")(6) and using three consultant average October 1, 2024 pricing assumptions(6).
• Proved developed producing ("PDP") and proved plus probable ("2P") reserves estimated at 92 million boe (75% gas) and 256 million boe (74% gas), respectively, based on McDaniel estimates(6). The acquisition price per boe of PDP reserves is $11.70, which translates to an implied recycle ratio of 1.3 times based on 2025 forecasted operating netbacks and 1.5 times based on 2026 forecasted operating netbacks, as noted above. Approximately 30% of the over 700 identified drilling locations have been included in the reserves estimates.
• Before-tax PDP reserve net present value at a 10% discount rate is estimated at $1.0 billion based on McDaniel estimates(6) and using three consultant average October 1, 2024 pricing assumptions(6). This value represents over 90% of the purchase price, implying significant upside value associated with probable reserves and unbooked locations.
• Vermilion's significant debt reduction efforts over the past five years, totaling over $1 billion since 2020, created the balance sheet capacity to execute this long-duration, strategic acquisition, yielding a 15% increase in excess free cash flow ("EFCF")(4) per share in 2025. The Company will continue its disciplined efforts on balance sheet management and capital allocation to ensure debt targets are reached in a timely fashion.

Pro Forma Outlook – A Global Gas Producer

Upon Closing, Vermilion will be an approximately 135,000 boe/d entity with greater than 80% of its production derived from its global gas franchise, consisting of liquids-rich gas in Alberta and BC and gas-weighted production in Ireland, Germany, Netherlands and Croatia. Assuming the Acquisition closes mid-Q1 2025, Vermilion anticipates corporate 2025 production to be in the range of 126,000 to 133,000 boe/d with capital expenditures expected to be in the range of $725 to 775 million. Inclusive of the incremental capital being allocated to the newly acquired Deep Basin assets, the aggregate capital investment into Vermilion's global gas portfolio will represent over 70% of total capital for 2025.

Based on a mid-Q1 2025 close and forward commodity prices(5), including the impact from the current hedge position which covers approximately 25% of 2025 production, Vermilion forecasts pro forma 2025 FFO of $1.2 billion (~$7.80 per share)(3) and FCF of approximately $450 million (~$2.90 per share)(4). Based on this forecast, the Company expects to exit 2025 with net debt(7) of approximately $1.8 billion representing a net debt to FFO ratio(8) of 1.5 times. On a pro forma basis, the Company will target a return of capital ("ROC") payout of 40% of EFCF until net debt reaches an appropriate level, at which time we will increase the payout back to 50%. The absolute amount of capital returned to shareholders at the pro forma target is expected to be equivalent to our base business with a 50% ROC payout. Over the long-term, the Acquisition is expected to increase the amount of capital available for shareholder returns. Vermilion plans to provide an updated 2025 budget and financial guidance upon Closing.

Pro Forma Highlights

• Dominant Deep Basin Position: Vermilion will have over 1.1 million net acres of land in the Deep Basin, where the Company has been operating for nearly three decades, with current production over 75,000 boe/d. Vermilion becomes the fifth largest Deep Basin producer, enhancing its operational scale to further reduce costs and improve capital efficiencies.
• High-Graded Asset Base with Enhanced Inventory: Acquired assets will immediately attract capital and allow for near-term high-grading within Vermilion's pro forma development plans in the Deep Basin while providing an enhanced inventory capable of holding production flat for over 15 years.
• Enhanced Long-term Return of Capital: Equivalent absolute return of capital in the near-term and materially positive to shareholder return of capital in the medium and long-term.
• Accretive and Synergistic: Immediately improved FFO and EFCF per share, expect to supplement with achievable financial and operating synergies.
• A Global Gas Producer: Upon closing of the Acquisition, Vermilion will be an approximately 135,000 boe/d entity with greater than 80% of its production derived from its global gas franchise, consisting of approximately 550 mmcfe/d of liquids-rich gas in Alberta and BC and over 100 mmcf/d of European gas with direct exposure to LNG pricing, resulting in premium realized gas prices.

1. The Arrangement Agreement contains customary representations, warranties, interim operational covenants of each party and customary closing conditions, including receipt of applicable shareholder, court and other regulatory approvals.
2. Anticipated 2025 production and financial results from acquired assets, based on company estimates and full year average reference prices as at November 21, 2024 (see below). Results reflect full year production and cash flow estimates and may not align with Company guidance following the close of the transaction, which will reflect post-close production and cash flow contributions.
3. Fund flows from operations (FFO) is a total of segments measure comparable to net earnings (loss) that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, windfall taxes, interest expense, equity based compensation settled in cash, realized gain (loss) on derivatives, realized foreign exchange gain (loss), and realized other income (expense). The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations, and make capital investments. FFO does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. Per share amounts are supplementary financial measures and are not standardized financial measures under IFRS, and therefore may not be comparable to similar measures disclosed by other issuers. They are calculated using FFO (a total of segments measure) and weighted average basic shares outstanding. The measure is used to assess the contribution per share of each business unit.
4. Free cash flow (FCF) and excess free cash flow (EFCF) are non-GAAP financial measures comparable to cash flows from operating activities. FCF is comprised of FFO less drilling and development and exploration and evaluation expenditures and EFCF is FCF less payments on lease obligations and asset retirement obligations settled. FCF and EFCF per basic share are non-GAAP supplementary financial measures and are not standardized financial measures under IFRS and may not be comparable to similar measures disclosed by other issuers. They are calculated using FCF or EFCF and weighted average basic shares outstanding.
5. 2025 forward strip pricing as at November 21, 2024: Brent US$72.31/bbl; WTI US$68.49/bbl; LSB = WTI less US$4.96/bbl; TTF $19.90/mmbtu; NBP $20.04/mmbtu; AECO $2.34/mcf; CAD/USD 1.40; CAD/EUR 1.48 and CAD/AUD 0.91. 2026 forward strip pricing as at November 21, 2024: Brent US$70.26/bbl; WTI US$66.25/bbl; LSB = WTI less US$6.18/bbl; TTF $15.83/mmbtu; NBP $15.92/mmbtu; AECO $3.16/mcf; CAD/USD 1.39; CAD/EUR 1.50 and CAD/AUD 0.90.
6. Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") in a report dated December 17, 2024, with an effective date of November 30, 2024 (the "McDaniel Reserves Report"). Net present value of discounted cash flows as provided in the McDaniel Reserves Report. Three consultant average October 1, 2024 pricing assumptions used in reserve estimates as follows: 2025 WTI US$72.00/bbl, AECO C$2.50/mmbtu, CAD/USD FX rate 0.747; 2026 WTI US$74.98/bbl, AECO C$3.36/mmbtu, CAD/USD FX rate 0.753; 2027 WTI US$76.65/bbl, AECO C$3.62/mmbtu, CAD/USD FX rate 0.753.
7. Net debt is a capital management measure most directly comparable to long-term debt and is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities).
8. Net debt to four quarter trailing fund flows from operations is a supplementary financial measure and is not a standardized financial measure under IFRS. It may not be comparable to similar measures disclosed by other issuers and is calculated using net debt (capital management measure) and FFO (total of segment measure). The measure is used to assess the ability to repay debt.

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