The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from CNW Group

Vero Announces 2011 Financial and Operating Results

Monday, March 12, 2012

Vero Announces 2011 Financial and Operating Results18:59 EDT Monday, March 12, 2012CALGARY, March 12, 2012 /CNW/ - Vero Energy Inc. ("Vero" or the "Company") (TSX-VRO) today announces its 2011 financial results. Copies of the complete audited financial statements and management's discussion and analysis in respect thereof for the year ended December 31, 2011 will be available, in due course, through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.Financial and operational highlights for the quarter and year ended December 31, 2011 with comparative data for 2010 are as follows:    Three months endedDecember 31,  Twelve months endedDecember 31,Financial ($000's except per share amounts)  20112010%Change  20112010%ChangeProduction revenue  29,74027,6248  126,837108,87416Funds flow from operations  14,87715,294(3)  65,85356,77216   Per basic share  0.300.33(9)  1.341.285   Per diluted share  0.300.33(9)  1.341.285Net earnings (loss)  (79,216)(3,359)2,258  (74,919)2,573(2,895)   Per basic share  (1.62)(0.07)2,214  (1.53)0.06(2.650)   Per diluted share  (1.62)(0.07)2,214  (1.53)0.06(2,650)Capital expenditures (net)  24,72643,558(43)  119,550129,7518Net debt  177,201123,81443  177,201123,81443           Share Capital (000's)          Basic, weighted average  48,99246,7735  48,97844,25711Basic, end of period  48,99248,920-  48,99248,920-Diluted (treasury method)  48,99246,7735  48,97844,25711Fully diluted  52,00053,196(2)  52,00053,196(2)           Daily Sales Volumes          Natural gas volumes (mcf/d)  40,41737,7047  42,07339,9325Light oil (boe/d)  1,08994915  1,11165669Liquids (boe/d)  1,0941,109(1)  1,1151,210(8)Corporate (boe/d)  8,9198,3417  9,2388,5228           Average Prices Realized          Natural gas ($/mcf)  3.484.08(15)  3.964.39(10)Light Oil ($/bbl)  91.8679.0616  89.7475.0020Liquids ($/bbl)  75.4864.3017  72.8861.0519Corporate ($/boe)  36.2436.001  37.6235.007           Netbacks ($/boe)          Operating  22.1623.01(4)  23.5721.699Funds flow  18.1219.93(9)  19.5418.267           Wells drilled          Gross  710(30)  3131-Net  4.76.7(30)  23.624.5(4)(1)     Funds flow from operations is calculated as funds provided by operating activities from the statement of funds flows, adding change in non-funds working capital and asset retirement expenditures. Funds flow from operations is used to analyze the Company's operating performance and leverage. Funds flow from operations does not have a standardized measure prescribed by IFRS and therefore may not be comparable with the calculations of similar measures for other companies.(2)     Net debt represents current assets less current liabilities and bank debt (but excludes the potential future liability related to the mark-to-market measurement of hedges). It does not have a standardized meaning prescribed by IFRS and it is therefore unlikely to be comparable to similar measures presented by other companies.(3)     All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.(4)     Operating netback equals production revenue less royalties, transportation and operating costs calculated on a per boe basis. Funds flow netback uses the operating netback, adds interest and other income and then subtracts interest and general and administrative costs. Operating netback and funds flow from operations netbacks are not standardized measures prescribed by IFRS and therefore may not be comparable with the calculations of similar measures for other companies.2011 IN REVIEW (all dollar amounts are in 000's except per share, boe, and per boe amounts unless specifically otherwise noted)Vero is pleased to report to its shareholders that the Company successfully continued with its plans to transition to more oil and liquids weighting throughout 2011. The decision was prudent given the difficult operating environment for natural gas producers particularly in the last half of the year as natural gas prices continued to decline. Ultimately Vero initiated a major transition into oil by starting the process to sell the majority of its natural gas assets.Vero delivered an 8% increase in average production levels, for the year ended 2011, achieving 9,238 boe/d over 8,522 boe/d in 2010. Funds flow from operations was 16% higher at $65.9 million or $1.34 per share (weighted average and diluted) compared to the $56.8 million ($1.29 per share) in 2010. Vero realized a net loss of $74.9 million in 2011 or $1.53 per basic and diluted share. The loss was principally attributable to impairments taken on the oil and gas assets as well as goodwill at the end of the year. Further loss was driven by write-downs associated primarily with the fair value of the natural gas assets sold.Vero's exploration and development capital spending in 2011 was $124,939, which was flat with the capital spent in 2010. The Company drilled 31 gross (23.6 net) wells versus 31 gross (24.5 net) wells drilled in 2010. Vero's net debt stood at $177,201 at December 31, 2011. In the year the Company sold a portion of its non-core assets for proceeds of $5.4 million.By concentrating drilling efforts on our expanding Cardium land base, the Company grew oil production by 69% during the year. In shifting the focus to the more profitable oil and liquids production throughout the year, we were able to increase the percentage of revenues coming from liquids by 10% as the average contribution from liquids production was 52% throughout 2011.Vero increased its borrowing base with its syndicate of banks to $170 million from $140 million in April of 2011. Even in the face of lower gas price decks, this borrowing base was maintained in its mid-year review as a result of Vero's strong drilling successes.The Company embarked on an initiative to sell the majority of its natural gas production. Discussions for the sale of the gas assets occurred during the fourth quarter of 2011 which culminated in a binding purchase and sale agreement that was executed on January 2, 2012. Gross proceeds from the sale, prior to adjustments, were $209 million. Upon the closing of the sale on January 31, 2012 Vero repaid all of its existing bank indebtedness.2012 OUTLOOKThe future looks very bright for Vero as the sale of the natural gas assets has put the Company in a great position financially and strategically. The decision continues to look solid as natural gas prices have further declined into 2012 and look to be under severe pressure for some time with high natural gas storage levels and high production levels in North America. Vero is strongly capitalized and has successfully restructured its business into a high growth, pure-play Cardium light oil producer. The Company is now focused on a commodity and a play that looks to command solid commodity prices generating solid returns for some time. This is recognized in the future prices for the next few years where prices are well over $100 per barrel for West Texas Intermediate oil. The management team has plenty of technical experience in the play and area having drilled over 44 horizontal wells to date in the Cardium formation.With the restructuring of the business complete and a very strong capital structure, the Company has put a plan in place that will have maximum flexibility to execute its business plan. Vero received an initial borrowing base of $45 million, and current forecasts for 2012 are to spend $62.5 million on its exploration and development program. This includes the planned drilling of 28-30 wells (16-17 net) all of which will target horizontal Cardium light oil prospects. Vero currently forecasts that production should average 2,300 - 2,500 boe/d with 67% light oil and liquids production during 2012. The Company will prudently manage its capital throughout the year and anticipates a net debt to cash flow ratio at the end of the year of approximately 0.5 times, based on the fourth quarter's projected cash flow. To protect Vero's cash flow position and secure the execution of its capital plan, the Company has entered into hedges such that approximately 44% of its forecast 2012 production has a floor of just over $88/bbl Canadian.In Summary, Vero has been successful in shifting its focus to oil production. The result is a company with strong capitalization, and a high growth, light oil producer.  The Company will have low cost structures and high corporate netbacks generating strong cash flow and capital to be redirected into the large multi-year drilling inventory allowing for solid production and reserve growth. Vero will continue to prudently manage the asset base to ensure maximum flexibility from a financial and business strategy standpoint. The team is focused and ready to grow the Company quickly and efficiently similarly to what occurred in its early years in the prior iteration of Vero. The Company would like to thank its long term shareholders and new shareholders for their support and looks forward to providing a first quarter operations update early in April.FINANCIAL STATEMENTSBelow is selected financial statement information for the year ended December 31, 2011 with comparative data for December 31, 2010. For full disclosure of our audited financials statements with notes and the Management, Discussion and Analysis, please visit our website or SEDAR.VERO ENERGY INC. Balance Sheet(in thousands of Canadian dollars)                                                                                       December 31,2011December 31,2010January 1,2010ASSETS    CURRENT          Accounts receivable 14,72927,45829,541      Prepaid expenses and deposits 1,0353,2414,566 Loans receivable --2,289 Assets held for sale 216,897--  232,66130,69936,396     Derivative contracts 5--Property, plant and equipment 131,882352,007272,343Exploration and evaluation assets 14,49219,49515,302Goodwill 5,63319,91319,913  384,673422,114343,954     LIABILITIES    CURRENT          Accounts payable and accrued liabilities 35,76260,34949,574  Derivative contracts 5391,4221,132  Bank debt 158,71594,16477,719  Deferred liability -5,062-  Liabilities associated with assets held for sale 18,660--  213,676160,997128,425            Derivative contracts --113Decommissioning liabilities 2,1009,3467,960Deferred income taxes 6,08618,01313,422  221,862188,356149,920     SHAREHOLDERS' EQUITY          Share capital 216,678216,174180,617  Contributed surplus 14,67211,2049,610      Retained earnings (deficit) (68,539)6,3803,807  162,811233,758194,034  384,673422,114343,954     VERO ENERGY INC.Statement of  Comprehensive Income (Loss)  (in thousands of Canadian dollars, except per share data)                                 2011   2010REVENUE                   Petroleum and natural gas sales             126,837   108,874 Royalties             (14,359)   (11,568)              112,478   97,306                   EXPENSES                   Operating             28,233   24,950 Transportation             4,778   4,892 (Gains) losses on derivative contracts             262   (624) General and administrative             6,282   6,171 Share based compensation             2,913   3,171 Loss on disposal of assets             1,622   476 Exploration and evaluation             5,552   2,727 Depletion and depreciation             52,839   44,094 Property, plant and equipment impairment loss             80,820   - Goodwill impairment loss             14,280   - Finance income             (90)   (197) Finance expenses             6,882   5,842              204,373   91,502                   EARNINGS (LOSS) BEFORE TAXES             (91,895)   5,804                   TAXESDeferred income tax expense (recovery)             (16,976)   3,231                   NET EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)             (74,919)   2,573                   NET  EARNINGS (LOSS) PER SHARE                    Basic             (1.53)   0.06 Diluted             (1.53)   0.06The accompanying notes are an integral part of these financial statements VERO ENERGY INC.Statement of Cash Flows (in thousands of Canadian dollars)                                        2011   2010CASH FLOWS RELATED TO THE                         FOLLOWING ACTIVITIES:                                       OPERATING                         Net earnings (loss)                    (74,919)   2,573      Adjustments for:                          Unrealized (gain) loss on derivative contracts              (888)   177             Share based compensation              3,126   3,171             Depletion and depreciation              52,839   44,094       Accretion of decommissioning liabilities               397   323       Exploration and evaluation expense              5,552   2,727       Loss on disposal of assets              1,622   476       Property, plant and equipment impairment               80,820   -       Goodwill impairment              14,280   -             Deferred income tax expense (recovery)              (16,976)   3,231                      65,853   56,772      Decommissioning costs incurred              (37)   (341)      Changes in non-cash working capital              14,685   5,651               80,501   62,082                    FINANCING                     Increase in bank debt              64,551   16,445  Repayment of loans to officers/directors              -   2,289  Proceeds from stock option exercises              348   4,857  Proceeds from issuance of common shares, net of share issue costs              -   32,660               64,899   56,251                    INVESTING                         Additions to petroleum and natural gas properties              (123,655)   (117,310)  Additions to exploration and evaluation assets              (1,284)   (7,135)  Purchase of petroleum and natural gas producing assets              (40)   (7,988)      Additions to administrative assets              (69)   (27)      Proceeds on sale of petroleum and natural gas assets              5,498   3,609      Changes in non-cash working capital              (25,850)   10,518               (145,400)   (118,333)                    NET DECREASE IN CASH AND    CASH EQUIVALENTS              -   -CASH AND CASH EQUIVALENTS,   BEGINNING OF PERIOD              -   -                    CASH AND CASH EQUIVALENTS,   END OF PERIOD              -   -Vero Energy Inc. is a Calgary based oil and natural gas exploration and development company. Vero's common shares trade on The Toronto Stock Exchange under the symbol "VRO". Please see the latest corporate presentation on the Vero Energy Inc. website at www.veroenergy.ca.This press release shall not constitute an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction.  The common shares of Vero will not be and have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States, or to a U.S. person, absent registration or applicable exemption therefrom.READER ADVISORY Forward Looking Statements:  Certain information regarding the Company in this news release including management's assessment of future plans and operations, production estimates including forecast 2012 average rates and commodity mix, initial production rates, drilling inventory and wells to be drilled, timing of drilling and tie-in of wells, productive capacity and product mix of new and existing wells, funds flow and net debt expectations, ability to execute on our 2012 capital expenditure plans and the timing thereof, future oil and natural gas prices, future liquidity and financial capacity, future results from operations and operating metrics, and prospectivity of our Cardium inventory may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, incorrect assessment of land values, environmental risks, competition from other producers, inability to retain drilling rigs and other services, the timing and length of plant turnarounds and the impact of such turnarounds and the timing thereof, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources.  Forward looking statements or information is based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect.  As a consequence, the Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or, if any of them do so, what benefits the Company will derive therefrom.  In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the Company's ability to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the Company's ability to successfully market its oil and natural gas products.  Readers are cautioned that the foregoing list of factors is not exhaustive.  Additional information on these and other factors that could effect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com, and the Company's website www.veroenergy.ca). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. BOE Disclosure:  Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation.  A BOE conversion ratio of 6 Mcf: 1 BBL is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing a 6:1 conversion basis may be misleading as an indication of valueNon-GAAP terms: This press release contains the terms "funds flow from operations" and "netbacks" which are not terms recognized under IFRS Generally Accepted Accounting Principles ("GAAP"). The Company uses these measures to help evaluate its performance as well as to evaluate acquisitions. The Company considers funds flow from operations a key measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Funds generated from operations should not be considered as an alternative to, or more meaningful than, funds flow from operating activities as determined in accordance with International Financial Reporting Standards as an indicator of Vero's performance. Vero's determination of funds flow from operations may not be comparable to that reported by other companies. The reconciliation between net income and funds flow from operations can be found in the statement of funds flows in the financial statements. Vero also presents funds generated from operations per share whereby per share amounts are calculated using weighted average shares (basic and diluted) outstanding consistent with the calculation of net earnings per share, which per share amounts are calculated under GAAP. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues (including hedging gains and losses) and subtracting royalties, operating expenses and transportations costs on a per boe basis. Funds flow netbacks are calculated by taking the operating netback, adding interest and other income and then subtracting interest costs, and general and administrative costs on a per boe basis. For further information: Doug Bartole, President & CEO, at (403) 218-2063 Gerry Gilewicz, Vice-President Finance & CFO, at (403) 693-3170 Scott Koyich, Investor Relations, (403) 215-5979 Internet:  www.veroenergy.ca