Vermilion Energy Inc.

Provide you a bit of an update on our 2012 key accomplishments. Some of our first quarter highlights and some of our ongoing activity.

So I'd also like to welcome the people who are just joining us by webcast today. And so if you have any questions at the end of the presentation, we ask that you speak into the microphones that are at the center of the room.

And questions can also be addressed from our webcast audience.

So I've got a couple of advisory slides. So just going over our 2012 key accomplishments.

2012 was a very strong year for Vermilion. In terms of our portfolio and future growth, we achieved 7% growth and -- 18 -- in production, an 18% growth in fund flows.

We completed a couple of strategic acquisitions in France, adding about 2,800 barrels a day Brent-based price crude.

We identified contingent resources of 161 million BOEs and prospective resources of 249 million BOEs, announced a significant position in the liquids-rich Duvernay play, 175,000 acres roughly, and we commenced testing of that play. We awarded -- we were awarded 3 land permits in The Netherlands totaling about 222,000 acres and captured a 2.3 million-acre block of land in Morocco, following a nonconventional and conventional exploration play.

In terms of shareholder returns and financial stability, a very strong year. We significantly outperformed our peers at 19.6% positive returns versus the negative 21.5%, outperformed a number of other relevant indices as well.

Our balance sheet is sort of best in class, a balance sheet of 1.2x debt to cash flow at the end of 2012, which is very, very strong. In terms of our operations, we doubled our production in the Cardium light oil play to about 7,500 BOEs per day, and we achieved record consolidated production with sort of record production in both Netherlands and France and increased our reserves, our 2P reserves by just under 13%.

We have a real focus on our health, safety and environment. It's a focus that we've always had in the company, but we're really trying to move it to another level.

We really further strengthened our HSE culture throughout the organization as part of our 2020 vision of striving for best-in-class health, safety and environment. We had no loss time incidents in Canada, France, The Netherlands or Australia, which is remarkable.

We had over 60 emergency response exercises that we completed and carried out a global corporate challenge that sort of focused on health and the environment and had very high participation rates globally of around 75%.

On the governance side, Vermilion is committed to high standards of corporate governance practices, which really ensures that we're taking care of our shareholders' interest. And as part of this, in the annual review that The Globe and Mail undertakes every year, we were ranked third amongst all oil and gas companies which -- and 17th amongst the 200 largest Canadian companies, so top decile performance, which I think is a reflection of our commitment to shareholders' interest.

A high-performing company is really made up of high-performing people working in a positive corporate culture. And so this is an area that we put a lot of focus on.

We are really proud and really pleased that we were named as a great place to work for our fourth consecutive year, both in Canada and France. We were ranked in the best workplaces in Canada 22nd, that's out of 318 companies, and 27th in France.

And so I think it's really an illustration of a strong corporate culture that we've got, and we're really proud that our staff continually regard Vermilion as a great place to work.

In terms of our first quarter highlights, we had strong quarter-over-quarter production growth of 7% and funds flow from operations growth of about 15%. In terms of our netbacks, we were able to maintain quite high netbacks as a result of our strong Brent pricing and our European gas pricing and our weighting to oil, which really was a big part of driving the strong cash flow growth.

In terms of some of the other achievements in the first quarter, we listed on the New York Stock Exchange on March 12, and that was really -- the main purpose for that is really to just to try and expand our shareholder base globally into the U.S. and into Europe and Asia.

And so we're really -- we're pretty focused on that, and I think that we'll make some good inroads there.

We have increased our monthly dividend to $0.20 per share from $0.19 so that's about a 5% increase. We drove 20 net Cardium wells and 1.3 net liquids-rich gas wells, and pretty strong wells in both of those.

3 wells in France that were drilled that looked very encouraging; 2 wells in Wandoo in Australia, which looked very, very good. And finished a 3-well vertical test program in our Duvernay play.

That is the first stage of testing that play and again, encouraging results there. And we're working with the bank syndicate to increase our total debt capacity to a combined $1.4 billion, which gives us ample capacity to carry out our growth plans over the next 3 years.

in Canada, western Europe and Australia. We've got a global commodity exposure which -- and high margins, which really reduce the risk.

It reduces the volatility to our cash flow. We have a fully funded production and cash flow growth, that's very well-defined growth, that we're going to be delivering some fairly significant growth over the next 3 years and well into the year 2020.

We've also got a number of unconventional resource plays that we've put together that are pretty exciting and really transformational types of resource plays.

We have a dividend that we've never cut in 10 years, and we've actually just increased it for the second time in the last 5 years recently, a strong balance sheet and a disciplined management that is really focused on value creation. I think I'll show you some of our results over the years, but it's been very strong performance on a relative basis over the 18 years that the company has been in business.

So in terms of the summary, as I mentioned, we listed on New York in March. We still have good alignment with the management ownership of about 8% of the company, market cap of $5 billion and debt-to-cash-flow ratio of about 1.2x.

Our production growth on the left of the screen, you can see, has been pretty steady year-over-year, 10% in '11, 7% in '12 and about another 6% -- we're on track to deliver at least 6% in 2013. So over the next 2 years, we're targeting about 30% production growth, and that's mainly driven primarily by our Cardium oil development and our Irish development called Corrib.

In terms of reserves growth, again, very steady year-over-year growth of about 8%. In 2012, we grew reserves by about 13%, and we have a reserve life index, proved plus probable reserve life index of about 12.5 years, so very long reserve life index.

And the real key here is that it's weighted to high-value barrels. 80% of it is tied to crude and high netback European gas and a good proportion of that is actually Brent crude.

So I think this slide really shows that we did have strong reserve growth of about 13% year-over-year in 2012. The key takeaway here is that we've done a very attractive metric, so very strong returns, with a recycle ratio of 2.4x.

So that means for every dollar we've invested, we're getting $2.40 back, so pretty significant returns.

In terms of our hedging -- or pardon me, in terms of the contingent and prospective resources that we booked in 2012, you can see on the left there, our current booked reserves are about 165 million barrels. Our best estimate contingent resources are about 161 million barrels.

Our best estimate prospective resources are about 240 million barrels. So on a combined basis, the contingent and prospective resources total above 400 million barrels.

And when you compare that to the booked reserves of 165 million barrels, I think it demonstrates that, really, Vermilion is very well positioned for future growth.

In terms of our cash flow growth, again, it's been very consistent and very significant. You can see on the left side of the page, 33% in 2011, 18% in 2012, and we're on track to somewhere between 10% and 15% again this year.

The future growth is going to be quite significant. We're targeting about a 40% growth in cash flow between now and 2015, which, again, is mainly driven by Cardium and by the Irish development called Corrib.

One of our primary focuses as an income and growth company is really focused on dividend reliability and dividend growth. And as I mentioned earlier, we've never cut our dividend since it was put in place 10 years ago.

We've had 2 increases in the last 5 years, and with the 40% cash flow growth that we're targeting over the next couple of years, we think that, that supports further dividend growth going forward.

In terms of our hedging philosophy, Vermilion hedges really only for the purpose of risk mitigation, only when we have to hedge. And we typically target about 50% net of royalties, and we'll go out typically out about 18 months and through a combination of collars and swaps.

Currently, we've got about 38% of our 2013 oil volumes hedged.

In terms of our payout ratio, which is defined as our dividend plus our capital spending, we're typically targeting about below 100%, and you could see on the left, from about 2003 to about 2008, we averaged well below 100%. Beyond 2009 to 2013, we are above 100%, but this is the period of time where we had no debt in the company, and we took on a new development in Ireland, which took -- which isn't producing.

It's a new development, so really this is really project financing. And the Corrib financing shown in the gray bar, if you remove the core financing over the last couple of years, we've been at the 100% payout ratio.

And once Corrib comes on, you'll see our payout ratio go well below 100% once again.

In terms of our balance sheet, currently, it says on the left there that we have $1.2 billion credit capacity. That's just been in the process of being upgraded to $1.4 billion of total credit capacity.

That provides about $630 million of available surplus capacity. Our balance sheet is very strong.

You can see with the solid line at the bottom right, we're about 1.2x debt to cash flow. And you can see the history of Vermilion has always been around 1x, and I think that sort of speaks to the conservative nature of the company.

And we are truly positioned as well for strong market performance over the years. And when you compare our 1.2x debt to cash flow to our peer group at 2.5x on a relative basis, we're in a great spot.

There's a number of advantages of being international. The global commodity exposure, really, it gives you premium pricing, and the commodity diversification dampens the volatility and increases the dividend stability.

The other big advantage is really in the M&A side. There's typically less competitive M&A market internationally, and it really provides you some increased exposure to some high return acquisitions.

And I think we've got a history of those over the years. We're very opportunistic on the M&A side, and we're in a great spot right now because we don't -- we've got well-defined growth into the year 2020, and so we don't have to do any acquisitions.

And so we will pick our spots and target acquisitions that are going to create additional value above our existing long-range plan.

In terms of our commodity exposure, we're 80% levered to oil and European gas. Again, as I mentioned, it improves the stability of our cash flow, reduces the risk, and it's really well suited for a growth and income model.

You can see on the pie chart to the right, we have 42% of our productions tied to high Brent oil price. We've got 18% is -- pardon me, 21% is oil, WTI price; and about 16% is European gas.

In terms of the Brent premium to WTI, this slide demonstrates historical of around $16 premium in 2011, $17 in 2012. And based on the forward curve, it's currently trading at about an average of around $9 above WTI out to the end of 2014.

So this is quite significant in terms of the actual price realization that we get at the wellhead, and that's illustrated on this slide.

The slide on the left is what we actually received in the full year of 2012 and year-to-date in 2013 up to the end of April, shown on the right. So you can see Vermilion is getting anywhere between, call it, $25 and $60 a barrel more at the wellhead than what our competitors are in North America.

So our Brent production is really driving some significant cash flows that really put us in a great position relative to pure North American producers.

And we have a similar story on the European gas side. European gas right now gets about $10 per MCF, and this is a forward curve as well.

It goes out to 2016. And the blue line represents European gas, and then the red is Canadian AECO prices.

And so you can see we're getting about $6 per MCF more for our European gas than what Canadians are getting for Canadian gas, so it's quite significant.

These 2 factors really are what really drive -- those combined with strong fiscal terms are combined -- provide strong netbacks globally and gives us top decile netbacks and strong cash flow generation. And this is a relative comparison to our peers currently.

So you can see we're on the top decile in both the operating and after-tax cash netbacks compared to our peer group.

Canada, Europe and Australia. And in terms of our capital budget this year, it's about $485 million, about 50% of it's being spent in Canada.

The majority, about 80% of it, is being spent on the Cardium oil development. And then, there's about another $85 million that's being spent on the Irish development called Corrib.

So if you take Corrib out of the capital spend, we're spending about 70% of our cash flow and still providing about a 6% production growth, which is a reflection of high capital efficiency and something that I think is -- you're not seeing a lot of other companies being able to deliver.

I'll go through the assets in Canada. A lot of our key assets are focused in the Drayton Valley area, and what's really nice about these assets is we have 3 separate plays all on the -- pretty much the same land footprint.

So these plays are all stacked one on top of the other. We've got the Cardium, which is at about 1,800 meters; the Mannville liquids-rich gas, which is at around 2,500 meters; and the Duvernay, which is at about 3,200 meters.

Vermilion's cash is tax-sheltered in Canada for the next foreseeable future, and these plays in Canada are really expected to drive near- and medium-term growth for the company, and we're currently producing about 16,000 BOEs a day in Canada.

So we'll start with the shallowest zone, the Cardium, and Vermilion has got a dominant land position in the Cardium, we think, in some of the best Cardium. We have a 15,000 barrel a day facility that we operate, a battery.

And this year, we're going to be drilling about 42 net wells. And as I mentioned, the Cardium spending is really about 80% of our Canadian spending.

Vermilion's results, I think, speak for themselves. We do have a dominant position, but we think it's also in some of the highest-quality Cardium.

And Vermilion's results are shown in red there relative to the industry average production in the area. So you can see we have consistently higher production, and it really is done -- and it's a reflection of high capital efficiency.

We're getting about -- capital efficiency of about $10,000 per BOE per day. And you can see on the inset box, it's driving very strong returns of somewhere between 50% to over 100% rates of return payouts in the 2-year range.

And on the cost side, Vermilion's costs have come down quite significantly since we first started drilling the play, back in 2010. It came down from about $5.5 million to just a little bit over $3 million, so it's been about a 40% cost reduction through a number of optimization processes going from oil weighted -- oil fracs to water fracs, longer-reach wells, pad drilling and a number of other operational enhancements.

We have significant inventory remaining that's going to drive near-term growth. You can see on the left, we've drilled about 153 wells, 240 wells remaining in terms of inventory.

And then, we've got another contingent 120 wells that are really contingent on a combination of either higher oil prices or reduced cost. If you look on the right, late in 2010, we basically started from a standing start in the Cardium, and we've had significant growth over the last 2 or 3 years.

And we've got about 6 to 8 years of drilling inventory, and we're really looking to target about 12,000 to 14,000 BOEs a day by 2015 in Cardium. So this is a key contributor to our 30% production growth over the next 2 or 3 years.

So just below the Cardium is the Mannville, and we've got about 295 sections, about 188,000 acres of Mannville rights. Most of it's held by production, so we don't have a lot of expiry issues.

It's multi-zone, it's liquids-rich. We've got gas plants in the area.

We got gathering systems in the area, and we drilled the 2 wells this year. Though we haven't drilled wells out here for a while, but we've drilled a couple wells and pretty strong results, so we're very, very pleased.

The first one, over 3 million, 3.5 million a day, 500 barrels a day of condensate. And I think this has been on for about 30 days so that's about a 30-day rate.

The second well, 2.5 million a day, 100 barrels a day of condensate, so very strong results. We've got a number of drilling locations here.

And over the next -- I'd say, over the medium term, we'll continue to drill these wells, and they'll be a key part of our development plans going forward.

And then just below the Mannville is the Duvernay, and we've got about 175,000 acres, 272 net sections that we put together at a fairly reasonable cost, about $74 million, so it's about $425 an acre. It captures a full breadth of the liquids-rich gas window.

So the schematic on the left demonstrates if you're left of the red line, you're in the dry gas window; if you're right of the green line, you're in the oil window; and then, in between, you're in the liquids-rich gas window.

We've drilled 3 vertical wells that confirmed that we're in the liquids-rich portion of the window. Our view is that, that yield in that range will be anywhere from 30 to 300 barrels per million of condensate.

That's solely condensate. And as I mentioned, because it underlies the existing infrastructure that we've got in place, we think that it gives us a bit of an advantage in terms of developing this in an efficient manner, in a cost-efficient manner.

The results of some of the technical work we've done on the core data confirms, first of all, that we are in an overpressured reservoir, with some indications of natural fracturing. We have high total organic content, low clay content, so pretty brittle rock and high net to gross.

So I think it's got a lot of the attributes that are encouraging. We did include -- some of the contingent and prospective resources in the previous slide that I showed you came from the Duvernay position.

And this slide sort of demonstrates where our land position is relative to some of the other players in the area. But I think, of the 3 appraisal wells that we've put together, like I mentioned, it does confirm that we are in the liquids-rich window.

And really, our intent here is really to be relatively patient, wait for industry data to come out and try and benefit from the industry learning curve in terms of how to drill these wells, how to complete them, which areas we should target. So I think we're in a great spot.

We don't need the Duvernay until sometime in 2017 for future growth, maybe '18. And so we can be patient and try and drill it very cost effectively and in an efficient -- capital-efficient manner.

So in terms of the European core area, we've got dominant positions in each of the countries. In France, we're the #1 oil producer.

In The Netherlands, we're the #2 onshore gas producer. That's next to NAM, which is a joint venture of Shell and Exxon.

And in Corrib, when it comes on, it will produce about 95% of Ireland's gas production. So the European region is really expected to deliver stable, near-term production and cash flow, with, we think, some pretty good potential for medium- and long-term growth.

In France, as I mentioned, we're the #1 oil producer. We entered France in '97.

We reached record annual production last year. We're currently producing about 11,000 BOEs a day.

These are large oil-in-place fields. They're world-class reservoirs.

They have a number of workover, infill drilling and water flood opportunities. They get Brent pricing, high pricing.

They're low-decline assets. They're ideally suited for our type of model.

France has always been a very strong free cash flow generator. And this year, we're drilling 5 well infill and delineation program in France, and initial results are pretty promising there.

And I think we'll have more to say, hopefully, in the second quarter.

In terms of the couple of acquisitions that we completed this year in France, these are low-decline conventional oil assets. They have a number of development and water flood optimization opportunities.

These are really consolidation acquisitions done in existing areas for the most part, and they were done at some pretty attractive acquisition metrics. You can see on the right, we're getting recycle ratios of between 4x and 5x.

So very low cost, high return economics, which really, I think, reiterate the advantage of international M&A.

In The Netherlands, we currently produce about 6,200 BOEs a day. We entered The Netherlands in 2004.

This is high-impact natural gas drilling and development. It's royalty-free gas that gets $10 per MCF, so very strong returns.

We've generally been investing about 50% of the cash flow, and our production has been increasing. So again, I think it speaks to the opportunity for this to become a growth asset for us.

We achieved record production in 2012. And if you look at the slide on the bottom, these are some of the test rates that we've got over these wells.

So these are anywhere from 5 million a day to greater than 20 million day, royalty-free, $10 an MCF, very strong returns.

In The Netherlands as well, continuing on, we drilled 2 wells in 2012 in the second and third quarter. Those additions from '11 and '12 were coming on in 2013.

We did get 3 new permits in The Netherlands that total about 220-somewhat-thousand acres. So on a combined basis now, we've got 400,000 -- 435,000 net acres.

This year, we'll be drilling 3 wells, and that will be comprised of 2 exploration wells and 1 development well. So just on our existing permits, excluding the treaty that we've just got, we've got over 70 prospects.

And then, when you add the 3 new awards, I think we're starting to staff up in The Netherlands just because we think we can turn this into a pretty significant growth asset for the company.

In Ireland, this is the Corrib project. It's an offshore natural gas field that's about 83 kilometers northwest of Ireland.

When it comes on production late 2014, early 2015, it will bring on about 55 million a day of production net to Vermilion, which is about 9,000 BOEs a day net to Vermilion.

In terms of the interest, it's operated by Shell, and Vermilion has an 18.5% working interest. It's priced off U.K.

NBP pricing. And so with the rate now on the forward strip, when this comes on, it would get around $10 in MCF, similar to our European gas -- The Netherlands gas price.

And when Corrib comes on, it will actually deliver about 60% to 65% of Ireland's gas needs, so it is very strategic for the company -- for the country. And I think we have some pretty strong support from the government on this project.

In terms of -- this is a schematic that sort of shows the overall project. And on the top slide -- the top schematic, you can see those are wells on the left, there's the offshore pipeline in red.

The wells are drilled and tested. The offshore pipeline is installed.

The gas plant is ready for commissioning. 170 kilometers sales pipeline is installed and completed.

And really, the missing piece of the puzzle is the circled portion, the onshore pipeline, which is blown up in the inset. And that's about 9-kilometer pipeline.

About 5 -- just under 5 kilometers of that is having to be tunneled under the bay. Tunneling operations began middle of December last year, and the tunneling and construction commissioning should take about 2 years from that date to complete.

And when it comes on, it will bring on just a real strong gush of cash at around $170 million a year, which is very significant. It's about $1.70 a share for Vermilion.

Keeping in mind, I think last year, we were around 5, 9 [ph] or something, so it's just incremental to that. It's quite significant, and it's a key contributor to our 40% cash flow growth over the next 2 years.

Australia is an asset that, in our first quarter, we produced about 5,300 barrels a day. We had some downtime there while we we're drilling some of the wells.

We had a bit of cyclone activity. But we entered in Australia in '05.

This has been a very strong asset for us. A very -- it's been a bit of cash cow for the company.

It provides a lot of free cash flow, and it's priced off Brent. We get a big premium to Brent, about $7 as a result of some tough negotiating by our marketing department.

And we -- Australia is about 80 kilometers northwest of us. Wandoo is about 80 kilometers offshore on the northwest shelf.

And our goal here is really with the -- is to drill wells sort of every couple of years. We usually drill 2 to 3 wells.

This year, we've already completed our 2-well drilling program, had some very strong results. Test rates on the first well of about 3,000 barrels a day; the second well, about 6,000 barrels a day.

These are test rates that are pretty significant, higher than what our expectations were. We'll be choking this back significantly and really managing our total field production to between 6,000 and 8,000 barrels a day over the next couple of years, really just to generate stable free cash flow for the company.

And then on the international growth side, this is an area where we're sort of focused on in the European area. We're pursuing multiple low-cost entry opportunities via direct permit grants.

We're looking for opportunities that have modest capital commitments upfront. And we just got awarded one in Morocco, and we're working on a number of other opportunities.

So really focused on establishing early entry positions in these emerging resource plays, with potential for long-term growth. So these extra plays are really driven on providing longer-term growth sort of 2020 and beyond.

They are typically longer lead time items, but they are quite significant in potential size. We're looking to capture bigger opportunities.

And so the first opportunity in Morocco was 2.3 million acres of land. We have relatively small commitment of about $0.5 million in terms of some seismic and some study work.

And over time, if there's prospectivity here, there is a potential to bring in joint venture partners and a fairly attractive fiscal regime.

Here's a number of other licenses that have been awarded in this area and activity. There is -- you're starting to see some drilling activity on a number of these blocks, a number of notable players like Anadarko, EOG, Chevron, Cairn, Repsol.

So I think it will be interesting to see what develops. So this is ranked exploration land, so it is a high-risk opportunity, but it's high risk, high impact.

In terms of Vermilion's record, we have an 18-year track record of creating strong value. This slide shows the total equity that we've raised in the company of around $1 billion.

We paid back $1.6 billion in dividends, and we returned shareholder equity, plus another $600 million. And we have a market capitalization of around $5.2 million, so pretty significant value creation since inception.

And in terms of relative market returns, they're quite significant. They're really, I think, an affirmation of the growth and income model and the Vermilion's value-creation strategy.

If you look at the returns there, 1 year at 19.6%; 3-year, 22%; 5 year, 13%; 10-year, 20%; 15-year, over 15%; and since inception, close to 37%. So -- and if you look at the relevant indices, we've consistently outperformed all the relevant indices over the last 18 years.

And I think we're in a really good spot in terms of continuing to outperform over the next several years just with the well-defined growth of 30% in production and 40% in cash flow.

And in the meantime, investors that buy Vermilion today or that own Vermilion, they get paid a reliable 4.6% dividend while waiting for the production and cash flow growth and the share appreciation that goes with that. And I think beyond that, we've got an extensive position in the Duvernay play that, with success, I think, provides a pretty significant option value for investors.

And just in summary, Vermilion's got an internationally diversified asset base and product mix that's giving us -- providing us premium pricing and some good low-risk cash flow and production and dividend. We've got some well-defined production and cash flow growth over the next few years.

That's going to provide a 30% production growth, 40% cash flow growth.

We are focused on per share growth on production, reserves and dividend. These are reliable dividends that have never been cut in 10 years and grown twice in the last 5 years, a capital-efficient and sustainable model and really, long-term market outperformance, coupled with, we think, a pretty good relative valuation today.

We think it's still quite compelling.

So with that, I'll open the floor to any questions from either the webcast and from anyone here.

We do have a question from the Internet, from the webcast. What will the exposure to prices be when Ireland is fully onstream?

I'm sorry. Could you -- I didn't catch that.

I'm sorry.

What will the exposure to prices be when Ireland is fully onstream?

Well, I mean, when Ireland comes on, our prices for Ireland will be in the range of about $10 an MCF. And so, I guess, if it's related to the exposure to European gas prices, I guess, it would be $10 an MCF.

I'm not sure I totally understand the question, I'm sorry.

Is there any other questions, Andrea?

No other questions from the webcast.

Okay, okay. And if the webcast caller has any -- needs clarity on that, please call us at the office.

We're happy to expand on that.

Great. Well, thank you, everybody, for attending.

Thanks for your patience today. Thank you very much.