Vermilion Energy is an international oil and gas producer focusing on acquiring and developing producing properties in North America, Europe, and Australia. Canada is its largest region accounting for nearly 60% of total production, followed by France, Australia, Ireland, the USA, the Netherlands, and Germany. It is the No.1 oil producer in France.
Vermillion’s global asset portfolio provides commodity diversification and premium pricing. The company concentrates on crude oil and condensate, NGLs and natural gas with an emerging focus on renewable energy projects. Vermilion holds a 20% operated interest in the Corrib gas field in Ireland.
Conventional projects and additional growth opportunities in unconventional resource plays are key competitive advantages for Vermillion Energy. The company has both onshore and offshore operations in stable and developed economies, having clear regulatory policies for oil and gas exploration and development.
- Opportunity Score: 17
- Ticker: TSE:VET
- Sector: Energy
- Industry: Oil & Gas E&P
- Market Cap: 1.38B
- P/E: 0.00
- Dividend Yield: 0.00%
- Payout Ratio (Earnings): 0.00%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 2/10
- Dividend Income Fit: 0/10
Revenue Growth & Market Exposure
Vermilion deploys a good mix of conventional and semi-conventional asset base that delivers high margins, low base decline rates, and strong capital efficiencies. Its commodity and geographic diversification reduces volatility. The company has global independent E&P with leading positions in high netback businesses in North America, Europe, and Australia. Its business model is supported by high margins, low decline production, and strong capital efficiencies.
In the two-decade-long history, Vermilion has developed a large geographical diversification. It made its first international acquisition in 1997 and has since then continued to enter new jurisdictions. It continues to grow its presence in regions that are characterized by stable political, fiscal and regulatory regimes. The company is expecting 66% of its production and 55% of its FFO to be generated in North America in 2020, followed by other core markets – Europe and Australia. Vermilion has significant advantaged plays in Alberta and Saskatchewan.
Vermilion’s revenues have grown at a rate of 20% CAGR in the last three years. The company is targeting production growth driven by the exploitation of light oil and liquids-rich natural gas conventional resource plays in Canada and the U.S., and the exploration of high impact natural gas opportunities in the Netherlands and Germany. Oil drilling and workover programs in France and Australia also pose as significant growth opportunities. Vermilion is targeting production of between 94,000 – 98,000 boe/d on a revised capital budget of $350 to $370 million in 2020. Oil/ condensate/ WTI is expected to account for 44% of the estimated FCF in 2020, followed by European gas (31%) and Brent (25%).
Vermilion currently has a large and diversified inventory of capital-efficient organic growth prospects. Its 2020 Capex program is expected to deliver production growth with free cash flow. The liquids-rich inventory in Alberta should contribute towards medium to long-term growth. The company has a good record of registering consistent production growth from well-defined conventional projects and has additional growth potential in unconventional resource plays.
Vermilion has paid a sum of $3.8 billion in cumulative dividends from 2003 through 2020. The company has a solid history of returning capital to shareholders through monthly dividends and share buybacks. It pays a monthly dividend of $0.115 per share and has been paying a monthly dividend since 2003. Vermilion, however, reduced its monthly dividend to $0.02 per share in March 2020 as a result of the emergence of COVID-19 and declining global commodity prices. It has also approved a reduction of $80 to $100 million to its 2020 capital budget. Any excess cash generated beyond dividends and capital requirements will be allocated towards debt reduction, currently. The new capital investment and dividend reductions have diminished Vermilion’s annualized cash outlays by an additional $260 to $280 million. Shares of Vermilion currently sport a dividend yield of 6.4% and has a dividend growth rate of 2.5% CAGR in the last five years.
Vermilion has a unique self-funded growth-and-income strategic business that is underpinned by its operating, geographic and organizational models. Each of its major business units generates free cash flow. The company has a good track record of declining debt and of maintaining strong credit metrics. Vermilion continues to target free cash flow and dividend yield compression through per-share growth and risk reduction. It also focuses on cost reductions and inventory improvements that have mitigated commodity price declines in the past.
Vermilion’s diversified product portfolio with high margins reduces cash flow volatility and high margins also provide sufficient internally generated capital. Its European natural gas asset exhibits robust project economics while its Australian assets deliver a premium to Brent pricing. Both continue to deliver significant free cash flow.
Vermilion Energy competes with other Canadian oil and gas companies like Suncor, Imperial Oil, Husky Energy Inc., and Cenovus Energy. Suncor Energy is the largest oil producer in Canada and one of the largest independent energy companies in the world while Imperial Oil is an integrated energy company, dealing in exploration, production, refining and marketing oil & gas and other petroleum products and Husky Energy is a Canadian integrated oil and gas company.
|TickerKey||Ticker||Company||Sector||Industry||Score||Quote||Market Cap||P/E||FPE||EPS||Yield Raw||Yield||PayoutRatio||Payments||Dividend||Chowder||GrowthRating||IncomeRating||Tollbooth||Ambassador||Achiever||Aristocrat||King||Country||Graph|
|TSE:CNQ||CNQ||Canadian Natural Resources||Energy||Oil & Gas E & P||0.56||38.57||36.59||0.00||0.00||-0.37||0.0487||4.87||1.0000||4||1.88||0.1563||7||7||Intermediate||YES||YES||YES||NO||Canada||1|
|TSE:TOU||TOU||Tourmaline Oil||Basic Materials||Oil & Gas E & P||0.52||23.92||7.10||10.53||10.53||2.27||0.0268||2.68||0.2819||4||0.64||0.0268||3||4||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:OVV||OVV||Ovintiv||Energy||Oil & Gas E & P||0.29||29.90||6.20||0.00||0.00||-29.48||0.0157||1.57||1.0000||4||0.38||0.0157||1||3||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:WCP||WCP||Whitecap Resources Inc.||Energy||Oil & Gas E & P||0.29||5.62||3.36||0.00||0.00||-4.52||0.0107||1.07||1.0000||4||0.06||0.0107||3||3||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:PSK||PSK||PrairieSky Royalty Ltd.||Energy||Oil & Gas E & P||0.28||13.84||3.09||100.46||100.46||0.14||0.0520||5.20||5.1429||12||0.72||0.0520||2||3||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:ARX||ARX||Arc Resources||Energy||Oil & Gas E & P||0.30||7.65||2.71||0.00||0.00||-1.55||0.0314||3.14||1.0000||4||0.24||0.0314||1||4||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:CPG||CPG||Crescent Point Energy||Energy||Oil & Gas E & P||0.20||4.92||2.61||0.00||0.00||-4.76||0.0020||0.20||1.0000||4||0.01||0.0020||1||3||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:ERF||ERF||Enerplus Corporation||Energy||Oil & Gas E & P||0.21||6.87||1.40||0.00||0.00||-4.15||0.0175||1.75||1.0000||12||0.12||0.0175||0||4||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:VET||VET||Vermillion Energy||Energy||Oil & Gas E & P||0.17||8.69||1.38||0.00||0.00||-9.61||0.0000||0.00||0.0000||12||0.00||0.0136||2||0||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:FRU||FRU||Freehold Royalties Ltd||Energy||Oil & Gas E & P||0.28||7.49||0.98||0.00||0.00||-0.12||0.0481||4.81||1.0000||12||0.36||0.0481||1||5||Intermediate||NO||NO||NO||NO||Canada||1|
|TSE:BNE||BNE||Bonterra Energy Corp.||Energy||Oil & Gas E & P||0.06||4.03||0.14||0.00||0.00||-9.19||0.0000||0.00||0.0000||12||0.00||0.0000||0||0||Intermediate||NO||NO||NO||NO||Canada||1|
Commodity price volatility in the near past has negatively impacted the company’s cash flows. About 60% of Vermilion’s production comes from the U.S., where crude prices are comparatively low. Vermilion’s management estimated it could cover its proposed 2020 capital expenses and its dividend payout with funds from operations (FFO) as long as WTI stayed at or above $55 per barrel. With oil prices well below $50/ barrel, investors should brace themselves for any change in the near-term future.
Vermillion should be considered a risky investments with the current oil prices and lower demand across the world.