Vermilion Energy's operational update reveals significant progress in its European natural gas operations, particularly in Germany and Croatia. The successful testing of the first deep gas exploration well in Germany, with a flow rate of 17 mmcf/d, is a major milestone. This validates the company's reservoir assessment and positions them for increased production in 2025.

The acceleration of a third deep gas exploration well in Germany, despite farming down interests in the second well, demonstrates confidence in the region's potential. In Croatia, production exceeding 2,000 boe/d from the SA-10 block and positive test results from the SA-7 block further strengthen Vermilion's European gas portfolio.

With European natural gas prices at $17/mmcf, about 7x higher than AECO, Vermilion is well-positioned to capitalize on this pricing advantage. The 45% hedging for 2025 at $17/mmcf provides some downside protection while allowing for upside potential.

Vermilion's operational update highlights its strategic focus on high-margin assets. The company's European natural gas production, comprising 22% of total production but 40% of gas production, is particularly noteworthy given the premium pricing environment. With 2025 operating netbacks projected at over $55/boe for European gas operations, this segment is poised to be a significant cash flow generator.

European Success Fuels Strong Performance

Vermilion's recent operational successes in Europe are driving strong financial performance. European natural gas production, representing 40% of the company's gas output, is benefitting from premium pricing, with 2025 forward pricing estimated at around $17/mmcf. This is significantly higher than the AECO benchmark, providing a substantial margin for Vermilion. The company has strategically hedged 45% of its European gas production for 2025 at $17/mmcf, ensuring a measure of price protection while still allowing for potential upside gains. This strategic move underscores the company's confidence in the European gas market.

Key Highlights

• Germany: The first deep gas exploration well achieved a flow rate of 17 mmcf/d, validating the reservoir assessment and setting the stage for increased production in 2025. A third deep gas exploration well is planned for the fourth quarter of 2024.
• Croatia: Production on the SA-10 block exceeded 2,000 boe/d, with the SA-7 block's third well testing at 5.6 mmcf/d, demonstrating the potential of the region.
• Canada: Five Mica Montney wells achieved an average IP30 rate of over 1,000 boe/d per well, signifying efficiency improvements in the company's Canadian operations.

Shareholder Value and Future Plans

Vermilion's commitment to shareholder value is evident in its capital allocation strategy, balancing investment in growth projects with returns to shareholders. The company has repurchased 7.5 million shares year-to-date, demonstrating a commitment to returning capital. This is accompanied by the reaffirmation of a quarterly dividend of $0.12 per share. These actions demonstrate a balanced approach to capital management, focusing on growth while acknowledging shareholder interests.

Vermilion's success in Europe and continued focus on shareholder value make it a compelling investment proposition. The company's strong European gas operations and its strategic approach to capital allocation position it for continued growth and profitability. Investors looking for exposure to the natural gas market, particularly in Europe, should consider adding Vermilion to their watch list.

The Bottom Line: A Bright Future Awaits

Vermilion's strong financial performance and strategic focus on high-margin assets, particularly in Europe, make it a compelling investment opportunity. The company's recent successes in Germany and Croatia have strengthened its European gas portfolio, putting it in a prime position to benefit from the region's favorable pricing environment. With a balanced capital allocation strategy focused on both growth and shareholder returns, Vermilion appears poised for continued success. Investors seeking exposure to the natural gas market, especially in Europe, should consider adding Vermilion to their watch list.