Vermilion Energy Inc.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today to discuss our fourth quarter and full year 2012 financial and operating results and the highlights of our 2012 reserves and resources report.

I'm Lorenzo Donadeo, President and CEO of Vermilion. Joining me here today are Curtis Hicks, Executive Vice President and CFO; Dean Morrison, our Director of Investor Relations.

And joining us from Australia, where he's visiting our assets, on the telephone is Tony Marino, the Executive Vice President and Chief Operating Officer.

Earlier this morning, we announced the solid financial results underscored by strong production and reserves growth in 2012. Fund flows from operations for the fourth quarter and full year were $142 million, or $1.43 per share, and $558 million, or $5.69 per share, both strongly ahead of analyst consensus.

The significant 18% increase in full year fund flows from operations in 2012 was driven by strong growth in annual production of 7% and our significant exposure to high netback Brent-based crude and European gas production. The premium per Dated Brent over WTI averaged more than USD 17 per barrel in 2012.

And when combined with the premium to Brent we received for our Australian production, Vermilion's realized pricing for our international oil production, which comprises 43% of our volumes, contributed significantly to the strength of our fund flows from operations in 2012.

European natural gas pricing also remains robust. In 2012, we received an average price of $9.70 per mcf for our European gas compared to an average realized price of $2.52 per mcf for AECO-based natural gas in Canada.

Supported by the diversified pricing of our global commodity and the solid performance of our operations, we elected to increase our dividend in 2013 to $0.20 per share per month, beginning with the January dividend that was paid on February 15. We believe the business is well-positioned and we're confident in our ability to continue to provide reliable and growing dividends to our shareholders moving forward.

Speaking of the strength of Vermilion's operations today, we announced fourth quarter and full year production volumes of 36,265 BOE per day and 37,803 BOE per day, respectively. The 7% increase in annual production is largely attributable to strong production growth in Cardium light production in Canada and increased French production associated with the first of our 2 France acquisitions in 2012.

Cardium production is currently above the 8,000 BOEs a day and averaged 7,600 BOE per day in 2012, more than doubling the average production from 3,800 BOE per day in 2011. We are ultimately targeting production of between 12,000 and 14,000 barrels per day from this play in the next 2 to 3 years.

2012 was an active year for us in France, where we completed 2 separate acquisitions. Early in the year, we announced the acquisition of interest in 6 producing fields located in the Paris and Aquitaine basins in France for a current cash cost of approximately $106 million.

This acquisition added incremental production of more than 2,000 BOE per day and an estimated 6.7 million BOE of proved plus probable reserves, 96% weighted to Brent price crude oil and acquisition metrics of approximately $48,000 per flowing BOE and $15.80 per BOE of proved plus probable reserves. Last December, we completed a further acquisition of ZaZa Energy France for approximately $75 million.

The associated assets added approximately 850 BOE per day of production and an estimated 6.3 million BOE of proved plus probable reserves at a cost of approximately 88,000 per flowing BOE and $12 per BOE of proved plus probable reserves.

The favorable acquisition metrics for these transactions highlight the comparative value underlying our international asset base, enabling us to cost-effectively add significant high netback Brent-based crude production and reserves, and further strengthen our position as the dominant oil producer in France.

2012 was also a transformative year for our core project in Ireland. With final receipt of all key regulatory approvals required for construction of the onshore pipeline in 2012, the partners were able to begin the construction of the 9-kilometer onshore pipeline and initiated tunneling activities on December 16.

The tunneling, construction and commissioning of the onshore pipeline and related facilities and equipment is anticipated to take approximately 2 years, and the project is anticipated to produce first gas in late 2014 or early 2015 and reach peak production of approximately 55 million cubic feet a day, or 9,000 BOE per day, net to Vermilion in mid-2015.

Following completion of the 2 France acquisitions and the final acquisition payment of USD 135 million for Corrib in December, Vermilion closed the year with net debt of $677 million and a net debt to 2012 fund flows from operations ratio of 1.2x. Our balance sheet remains strong and capable of funding future growth, with approximately $500 million of borrowing capacity remaining at the end of the year.

As part of our new growth initiative, we also announced the significant position in the emerging Duvernay liquids-rich resource play in 2012. Since early 2011, we have acquired approximately 270 net sections in 2 large contiguous land blocks spanning the breadth of the liquids-rich window at a cost of approximately $425 per acre.

A significant portion of our Duvernay rights is directly underneath our existing Cardium development, providing the potential to leverage existing infrastructure and create timing, operational and infrastructure advantages.

During the year, we drilled Corrib and completed Diagnostic Fracture Injection Testing, or DFIT, on 2 vertical appraisal wells, and have completed a third vertical test subsequent to year-end. Preliminary interpretation of fluid recovery confirms that our lands are well-located within the liquids-rich window.

With significant industry information expected to become available during 2013, it is our current intention to cautiously pace the development of our Duvernay so as to maximize the benefit from industry learnings regarding the most cost-effective methods for completions in the Duvernay.

Further to our New Growth Initiative, Vermilion signed an exploration permit for 2.34 million acres in Morocco in late 2012. This deal is indicative of our low-cost, early entry approach to international resource opportunities, where we look to position the company in large prospective land positions with low to no upfront cost and minimal work commitments during the early years of the agreements.

The near-term Canadian new growth efforts, coupled with the longer-term international new growth efforts, should enable us to cost-effectively position the company for prospective growth from a portfolio of opportunities with potential to deliver through 2020 and beyond.

During 2012, we added 32.5 million BOE of proved plus probable reserves, replacing 235% of 2012 production with 19.2 million BOEs, or 59% of 2P reserves additions coming from exploration and development activities. Total proved reserves increased 9.1% to 105.3 million BOE, while 2P reserves increased 12.7% to 164.9 million BOE.

Finding and development costs, excluding FDC, were 23.53 per BOE on a proved plus probable basis, while FD&A came in at $19.52 per BOE on the same basis, or $23.36 per BOE, excluding FDC. All of the above metrics translate into recycle ratios of between 2.4x and 2.9x on an operating basis, and 1.7x and 2.1x on an all-in, after-tax basis, so both very strong metrics on a recycle basis.

Based on fourth quarter 2012 average production volumes, the company's current proved plus probable reserve life index grew to approximately 12.5 years.

For 2012, Vermilion also had GLG assess the level of economic contingent and prospective resources on its land in Canada, France, Australia and Ireland. GLG's report has estimated current contingent resources of between 83.9 million BOE low estimate; and 231.8 million BOE high estimate, with the best estimate of 160.9 million BOE.

GLG further estimated prospective resources of between 9.6 million BOE and 541 million BOE, with the best estimate of 249.4 million BOE. All estimates had an effective date of December 31, 2012.

This independent assessment reaffirms the robust nature of Vermilion's asset base.

Activity in Canada in 2013 remain predominately focused on the development of our Cardium light oil play. Currently, we anticipate a 2013 drilling program comprised of approximately 42 net Cardium wells.

And with over 260 wells of drillable inventory and a development plan of approximately 40 to 60 wells per year, development of the Cardium play will take the company well into the latter half of the decade.

Continued implementation of improved technology and well design, including the implementation of water-based frac fluids, multi-well pad drilling and extended horizontal sections, has enabled us to continue to reduce costs in the play. Through these improvements, we've been able to obtain a sustainable reduction in well costs from more than $5 million per section at the start of development in 2010 to approximately $3 million per section in the fourth quarter of 2012.

In addition to our Cardium and Duvernay rights, Vermilion holds a significant inventory of Manville liquids-rich gas opportunities, including the Ellerslie, Notikewin and Fahler horizons that underlie our Cardium lands. While development in Canada will be predominantly focused on the Cardium itself, we are planning a drilling program of 6 gross or 2.3 net wells in the Manville for 2013.

In the Netherlands, we completed the tie-in of 1 exploration well and the drilling of 2 new gas wells in 2012, one of which was brought online late in the year. We also received the necessary approvals required for a debottlenecking project initiated for the Garijp gas gathering system that is slated for completion in the first quarter of 2013.

The debottlenecking project is expected to enable production from the Vinkega-2 well, which was drilled in 2012 to be brought online.

Late in the year, we were also awarded an exploration license for the Opmeer concession, which is comprised of more than 56,000 net acres located directly west of our current Slootdorp concession in Northern Holland. In 2013, we're planning a 2- to 3-well drilling program, and we'll continue the technical and preparatory work required to continue toward building a rolling inventory of projects, such that each year contains a combination of drilling new wells and tie-ins of prior successes.

In France, we planned a four-well drilling program in Champotran in 2013, and we'll continue to focus on our annual work-over and recompletion activities. We will also finalize the integration of the 2012 ZaZa acquisition and pursue the identification of further opportunities to improve the current cost structure and optimize production operations, water flood management and future infill development.

In Australia, we're currently drilling the first well of a 2-well program that was carried forward from 2012. Given the late start to drilling operations, we currently anticipate production additions from the wells to occur during the second quarter.

And now on to other matters. As we've previously announced, Vermilion's initiated the process for a secondary listing on the New York Stock Exchange.

Pending final approvals, we currently anticipate the shares to be listed on the NYSE on or about March 12 under the ticker symbol VET.

Vermilion's market performance in 2012 also reflected the strong business fundamentals I've discussed earlier. In 2012, Vermilion ranked first in its peer group, generating a positive total return to investors of 19.6%, as compared to a peer group average of negative 18.1%.

So over the past 5 years, the company has delivered a compound annualized rate of return of 13.1% versus a peer average of 6.8%.

Vermilion currently has the richest portfolio of opportunities in its history, and we remain confident in our ability to deliver continued growth in both production and cash flow. We're working hard to increase the portfolio and position the company for continued growth to 2020 and beyond.

We remain committed to our long-term strategic goal to provide a balanced and continued stream of income and growth to shareholders. We have the financial strength and the capital structure to enable us to take action today in order to positively position our company and our shareholders for tomorrow.

Our management, directors and employees remain well-aligned with, and strongly invested alongside our shareholders, with holdings of approximately 8% of outstanding shares. We remain excited about the prospects of our future and look forward to delivering strong rewards for all of our shareholders.

With that, I will conclude my formal remarks. Operator, please open the floor to questions.

Three quick ones for me. I guess first, just with Corrib, I know you've used to -- I think you mentioned that you'd kicked off tunneling on December 16.

Just wondering if you can provide a little bit of color around that because I thought the original timing was maybe October or November, but could be off? Secondly, just curious at how much gas you got shut-in in the Western Canada?

And then the third is, what kind of a program have you got set up for Morocco this year?

Tony, can you maybe deal with those, please?

Sure, okay. First, on Corrib, the tunneling was very close to on schedule.

We started tunneling December 16. We originally have predicted that we would probably be tunneling either late November or early December.

So I don't think in any significant way different than the schedule. The -- Greg, your second question again was?

Yes, just how much gas have you got shut-in in Western Canada?

Okay. We averaged about 10 million of shut-in during the second half period when we had it shut-in.

And currently, we've got almost all that back on. The third question was on Morocco, and we don't really plan very significant expenditures this year.

We're going to have some minor fieldwork and total spending probably over the course of the year of less than $0.5 million.

Okay. And just the selection in terms of going into Morocco, what did you find most attractive, appealing about it right now?

Yes. I'll maybe deal with that one, Tony.

Really, when we initiated our new growth efforts back about 2.5 years ago, we sort of set 2 sort of objectives. We wanted to sort of focus on nearer-term growth in Canada through our Canadian new growth efforts.

And internationally, what we were trying to do was capture large opportunities that would be transformational opportunities upon success for the corporation, but we wanted to do it in a low cost way. So we went in and we were trying to focus in and around our current operating areas, so we did some regional mapping across Europe and sort of the surrounding area.

We extended it into Southern Europe. And of the only areas that we liked outside of Europe, I think Europe proper, we saw sort of Northern Morocco, and we had followed the Silurian shale play that had extended back into Morocco.

And we were able to capture a very large position there of over 2.3 million acres for very low capital commitment. So we look at that as really creating an option value for our stakeholders.

We don't see ourselves investing a lot of capital over the next several years, really technical work to try and work up the play. And if with success, like I say, you could bring in third-party money to spend risk capital.

And then with success, you could have transformational reserves for the corporation that you could use to either monetize or create additional value for the company.

Okay. And it is oil, right?

It could be either, either oil or gas, yes. The thing that we're encouraged by is that there's a lot of interest right now in Morocco.

There's been recent activity, both offshore and onshore. And then we are offsetting a big EOG block in that area.

And there seems to be a lot of interest right now. And so we've gotten in there for a very low cost.

I'm wondering if you could touch on the debottlenecking in the Netherlands? And I know that you were up against capacity there, and how much will that increase your capacity?

And the second question really relates to the statement of changes in cash flow. Maybe you could highlight, and I'm probably not scribbling down fast enough, the difference between corporate acquisitions and payment of the amount due pursuant to acquisition?

Tony, why don't you start with the first, and then we'll get Curtis to deal with the second?

On Garijp, we have a 42% interest in that gathering system. And the impact net to our in-force for production for '13 would be about 600 BOEs a day as a result of that debottlenecking.

Okay. And when would you expect that to be online for you?

About the beginning of the second quarter.

And, Dirk, it's Curtis. With respect to the statement of changes, we reflect these property acquisitions, which was the Total deal that we announced in January of 2012.

Corporate acquisition net of cash acquired was the ZaZa deal that we announced late in the year. And then payment of amount pursuant to acquisition, that's the USD 135 million that we had to pay Marathon as our second installment on Corrib.

I have a couple of questions on the Cardium. You've now completed your 15,000 barrel a day attrite, so can we assume that there's no need for more infrastructure?

That sounds like that's within the guidance of what you expect to achieve in peak production? And then secondly, you've already dropped the well costs there by about 40%.

You said you're going to be drilling some more of these long-reach horizontals. Does that mean that there's some room to even see those well costs come down further?

Thanks, Gord. Tony, can you please...

Yes, certainly. Well, first of all, I'll start with the well costs.

With the -- our current plan of ultimately drilling some 2-mile long wells, I do think that on a per-section basis, the well cost can come down further. That's -- the longer reach wells are probably one of the main ways that we're going to be able to further reduce the cost of each well.

There are some others, potential for water recycling among other things. So with these initiatives, I do think that we'll probably see a reduction to well costs.

The first question about the need for further capitalization of the processing capacity, I don't expect that we will have to do that. We can have some significant growth for the next 2 to 3 years with the capacity that we already have in place.

All right. And then switching to France and Australia.

In the inventory build in those areas in Q4, so we -- could we see a drawdown of those inventories as early as Q1 or could it be the next 3 months or would it take 6 months? How long usually do you draw the inventory builds down?

Yes, Gord. Really, like with respect to Australia, you can see some pretty big swings because we sell, we co-load that production.

And we can sell it in loads of up to 300,000 barrels, sometimes a bit more. So -- and really, the fact that we've built it fairly significantly at the end of the year was just a function of timing of when we're able to get a tanker in there to move some crude.

So we do expect to move a fair bit of crude in Australia in Q1. And so I would, based on what we're forecasting today, we'd expect to see some sort of a drawdown there.

And again, France, the loads are smaller than what we do in Australia. But again, the build is strictly a function of the timing of getting tankers into the Ambes Terminal.

And based on the shipments that we've got planned for Q1, we'd expect to see somewhat of a draw there as well. So -- but obviously, timing of coordinating those tankers has a significant influence on inventory volumes.

Okay. And just last question on the Duvernay, I don't know if it's too early to say yet, but is your long-term plan there to develop that, say, with a partner or to sell it or even develop it by yourself, you have sort of a strategy in place at this point?

Yes. I think, Gord, we've sort of accumulated that position as part of our new growth efforts to sort of drive growth starting once after Corrib comes on sort of starting in 2017, so we will be looking to develop that over that timeline.

How we do that is something that we'll be evaluating as we go through the process. At some point in time, we may bring in a partner depending on our need for capital and the stage of development.

So early days, but we're not taking anything off the table and in terms of how we develop that, how we approach it. If you can get attractive metrics, I think bringing in a partner may make sense, but we don't really want to prejudge it at this point in time.

Yes, 4 questions. They're all associated with Australia.

I just wanted to know if the rig has arrived to start the program. And has the first well been spud?

And then with that, do you continue to plan to do a 2-well program through this year? And then just with the cyclone season, and the forecasts that looked to be a little lighter than expected, have you felt any of the impact of cyclone season so far in this year?

Tony?

Okay, Travis. The rig is here.

We have started the first well. We are going to do a 2-well program.

And even though it is, let's say, a somewhat lighter cyclone season, we did have 1 cyclone shutdown that we have been through.

This is more of a strategies question related to acquisitions. You had previously talked about the acquisition market internationally.

Is that something that you're still considering? If so, is it really more tuck-ins in line with what you've done in France over the course of 2012?

Or are you continuing to look beyond those borders?

Yes, Cristina. We're basically -- we're looking quite strongly internationally.

We're looking at a number of opportunities domestically as well. Our focus is still sort of in and around our focus areas of Europe, Australia and Canada.

So it could be tuck-ins in those areas or it could be sort of expansions within those focus areas, but not really looking to go beyond those at this point in time. And there's a number of opportunities that seem to be coming out, both internationally and domestically.

And so our BD group is very busy right now. There's a lot of opportunities, and we're trying to be fairly selective and fairly patient through this process, and really looking for opportunistic, value-creating opportunities that would be incremental to our current, fairly robust long-range plans.

And domestically, you had previously talked about them being more oil-weighted transactions. Is that still the case or are you doing or looking at liquids-rich gas opportunities in addition to oil-weighted ones?

Right now, in Canada, we're mainly focused on the oil side. And internationally, we're looking at both oil and gas just because of the stronger pricing.

And then with Morocco, do you have to do any seismic work in the next couple of years? Is that part of your work commitment as a whole?

Tony, do you want to speak to that?

Yes, in -- we've established the work commitment only for the first year of the reconnaissance contract. And that involves some reprocessing, but no new data acquisition.

Great. Well, thank you, operator.

And thank you, everybody, for attending the conference call this morning. Thank you.