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Press release from CNW Group

Vero Announces Second Quarter 2012 Financial Results and Updates Operations Activity

Wednesday, August 08, 2012

Vero Announces Second Quarter 2012 Financial Results and Updates Operations Activity19:53 EDT Wednesday, August 08, 2012CALGARY, Aug. 8, 2012 /CNW/ - Vero Energy Inc. ("Vero" or the "Company") (TSX: VRO) today announces its second quarter 2012 financial results. Copies of the financial statements and management discussion and analysis in respect thereof for the quarter ended June 30, 2012 will be available, in due course, through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.Second Quarter 2012 HighlightsGenerated net earnings of $4.1 million ($0.08 per share) in the quarter.Completed the first full quarter under the transformed oil entity. Achieved a quarterly average of over 2,341 boe/d (68% weighting to liquids production) which represents a 68% increase in production of the retained assets over the comparative quarter in 2011.Top quartile operating costs of $8.71 per boe and average realized prices of $56.72 per boe contributed to a $38.63 per boe operating netback.Achieved funds flow from operations of $6.9 million, equating to $0.14 per share (basic and diluted).Company spent $5.5 million drilling 1(0.3 net) wells in the quarter resulting in debt to annualized cash flow of 0.8 times.Third Quarter 2012 Highlights and UpdateBrought 2 (1.3 net) horizontal wells on production in July.Drilled 3 (2.4 net) horizontal wells, with 4 (2.8 net) wells to be brought on in August.Estimate 2 (1.4 net) wells left to be drilled and brought on production in the quarter.RETAINED OIL ASSET SUMMARY DATADue to the significance and timing of the disposition that occurred on January 31, 2012 the financial data presented in the second quarter financial results will not necessarily be comparable to the operating and financial results realized in 2011. To give readers a better comparison reference point for what Vero looks like on a go forward basis in 2012 and beyond, we are presenting the below operating data that isolates the production and related financial data for just the assets that relate to the operations after the sale along with comparative 2011 data for the same asset base.     Three months endedSix months ended     June 30,June 30,Daily Production20122011%20122011%Oil (bbl/d)1,440859681,39086760Gas (mcf/d)4,4372,708644,2542,71657NGL (bbl/d)16287861558582BOE/D2,3411,397682,2541,40560            Three months endedSix months ended     June 30,June 30,Percent Contribution (%)20122011%20122011%Oil6162(2)6262-Gas3232-3132(2)NGL76117615Total100100 100100         Three months endedSix months ended     June 30,June 30,Revenue Contribution ($000's)20122011%20122011%Oil10,3167,6723420,90214,34446Gas8711,025(15)1,5912,029(22)NGL897597501,6641,12248Total12,0849,2933024,15717,49538SECOND QUARTER OF 2012 IN REVIEW (all dollar amounts are in 000's except per share, boe, and per boe amounts unless specifically otherwise noted)The second quarter of 2012 was the first full quarter of the newly reorganized Vero as a pure play light oil producer. During the second quarter Vero averaged 2,341 boe/d with a 68% liquids (oil and natural gas liquids) weighting. This represented an 8% increase over the 2,167 boe/d from the first quarter of 2012 realized from the production of the retained assets (assets not sold in January). Compared to the second quarter of 2011, the Company delivered a 68% increase in average production in respect of the retained assets.Capital exploration and development spending for the quarter was relatively low with 1 (0.3 net) wells drilled. The Company had previously forecasted drilling 3 (1.9 net) wells in the second quarter, however the reduced drilling activity was mostly due to very wet field conditions and delayed non-operated wells which pushed back drilling into the third quarter. The two additional wells the Company planned to drill and complete in the second quarter started drilling in late June. No wells were completed or brought on production in the quarter since the beginning of April.  Vero's total exploration and development capital spending in the second quarter was $5,453.  In addition, the Company spent $1,053 on a small acquisition at the beginning of the quarter which provided both an increase of working interests in one producing well, as well as additional Cardium drilling locations.  Quarterly production was affected by approximately 200 boe/d from breakup issues made up of delayed drilling and completion operations of both operated and non-operated wells, as well as third party facility downtime. The majority of third party facility downtime occurred in the Pine Creek area which was shut in for nine days during the last two weeks of June as a third party gas facility had a major vessel failure resulting in lost production of 85 boe/d.  Vero generated $6,853 in funds flow for the second quarter or $0.14 per share (basic and diluted). Despite the wide fluctuation in Canadian oil price differentials, Vero's average realized commodity prices in the second quarter increased 32% as compared to the first quarter of 2012. The combined increases in production, average commodity prices and unrealized gains on hedges lead to $4,126 in net earnings and reversed the $3,814 loss in the first quarter. Total net debt at the end of the second quarter stood at $22,809 representing 0.8 times cash flow on an annualized basis. As at June 30, 2012 there was $11,611 drawn on our $65 million bank line.2012 OUTLOOK AND OPERATIONS UPDATEVero's transformation to a predominantly oil focused explorer and producer continues to gain momentum. Vero is on its way to delivering solid yearly growth on the retained assets while maintaining a strong balance sheet which is of paramount importance given the volatility of oil prices, Canadian light oil versus WTI differentials and the equity markets. Vero currently has approximately 50% of its oil production hedged for the third and fourth quarters of 2012 at an average price of $90 Canadian (WTI).July started out similar to how June ended with third party downtime and delays due to wet weather and as a result, only 2 (1.3 net) horizontal Cardium wells, of which both are operated by Vero, have been brought on continuous production, the first on July 9th and the second on July 21st.  Notwithstanding the delays, the two wells referenced have been consistent with the Company's recent results.  The first well initially flowed at 736 boe/d (62% liquids) and after 28 days is still producing at 467 boe/d (60% liquids).  The second well is pumping, has been cleaning up and is currently producing at 249 boe/d (78% liquids) after two weeks.  The momentum on adding production over the next month is going to be building as 3 (1.8 net) horizontal wells have been fracture completed and are currently at various stages of final completion.  Vero is currently running production equipment and plans to bring these wells on production in the next week.  Another 100% well is scheduled to be completed within the next week and 2 (1.4 net) operated horizontal are anticipated to will be finished drilling in August and be completed shortly thereafter.  The results from the Cardium play in the basin are continuing to improve with ongoing changes and optimization of completions.  With these results, the Company is seeing increased activity in the play and noticeably from partners who are starting to get active on joint lands.  The non-operated wells may affect the Company's timing but estimates for the quarter are for the drilling of 7 (5.1 net) wells.Based on field estimates, Vero averaged over 2,350 (68% liquids) boe/d for the first week in August with a significant number of wells expected to be brought on and added to that production shortly.  Vero has significant strength and flexibility in its capital program with cash flow and the existing credit facility. The Company looks forward to providing its shareholders with a third quarter operational update in the second half of September.FINANCIAL STATEMENTSBelow is selected financial statement information for the three and six months ended June 30, 2012 along with comparative data for 2011. For full disclosure of our unaudited financial statements with notes and the Management, Discussion and Analysis, please visit our website or SEDAR. VERO ENERGY INC.Statement of Financial Position(in thousands of Canadian dollars) (unaudited)                                                                                 June 30,2012 December 31,2011ASSETS    CURRENT     Accounts receivable 9,534 14,729 Prepaid expenses and deposits 3,103 1,035 Derivative contracts 2,079 - Assets held for sale - 216,897  14,716 232,661     Property, plant and equipment 164,212 131,882Exploration and evaluation assets 11,562 14,492Derivative contracts 720 5Goodwill 5,633 5,633  196,843 384,673     LIABILITIES    CURRENT     Accounts payable and accrued liabilities 23,835 35,762 Derivative contracts - 539 Bank debt 11,611 158,715 Assets associated with assets held for sale - 18,660  35,446 213,676     Decommissioning liabilities 3,542 2,100Deferred taxes 7,764 6,086  46,752 221,862     SHAREHOLDERS' EQUITY     Share capital 129,628 216,678 Contributed surplus 16,337 14,672 Retained earnings (deficit) 4,126 (68,539)  150,091 162,811  196,843 384,673VERO ENERGY INC.Statement of  Comprehensive IncomeFor the three and six month periods ended June 30, 2012 and 2011(in thousands of Canadian dollars, except per share data)(unaudited)           Three months ended June 30 Six months ended June 30  2012 2011 2012 2011REVENUE         Petroleum and natural gas sales 12,084 36,611 30,006 65,732 Royalties (1,308) (3,994) (3,120) (6,571)  10,776 32,617 26,886 59,161         EXPENSES         Operating 1,855 7,667 5,413 13,663 Transportation 692 1,273 1,297 2,478 Losses (gains) on derivative contracts (4,165) (4,334) (3,065) 23 General and administrative 1,277 1,766 3,557 2,967 Share based compensation 801 618 1,410 1,329 Loss (gain) on disposal of assets (12) - 1,616 - Exploration and evaluation 223 2,651 2,989 3,033 Restructuring costs - - 1,976 - Depletion and depreciation 4,134 13,395 8,834 25,064 Finance income (26) (4) (61) (18) Finance expenses 161 1,837 929 3,416  4,940 24,869 24,895 51,955         NET EARNINGS BEFORE TAXES 5,836 7,748 1,991 7,206         INCOME TAXES         Deferred tax expense 1,710  2,127  1,678  3,768                    NET EARNINGS AND COMPREHENSIVE INCOME 4,126 5,621 313 3,438         NET  EARNINGS PER SHARE         Basic 0.08 0.11 0.01 0.07 Diluted 0.08 0.11 0.01 0.07VERO ENERGY INC.Statement of Cash Flows For the three and six months ended June 30, 2012 and 2011(in thousands of dollars) (unaudited)           Three months ended June 30 Six months endedJune 30  2012 2011 2012 2011CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:                          OPERATING         Net earnings 4,126 5,621 313 3,438 Adjustments for:          Unrealized gain on derivative contracts (4,189) (5,052) (3,333) (751)  Share based compensation 840 427 1,401 1,138  Depletion and depreciation 4,134 13,395 8,834 25,064  Accretion of decommissioning liabilities 21 106 33 201  Exploration and evaluation expense 223 2,651 2,989 3,033  Loss (gain) on disposal of assets (12) - 1,616 -  Deferred tax expense 1,710 2,127 1,678 3,768  6,853 19,275 13,531 35,891 Decommissioning costs incurred (212) (3) (212) (6) Changes in non-cash working capital 2,309 (127) (1,046) 5,370  8,950 19,145 12,273 41,255         FINANCING          Change in bank debt 10,543 10,672 (147,104) 38,644  Distribution of capital - - (14,698) -  Proceeds from stock option exercises - 51 - 328  10,543 10,723 (161,802) 38,972         INVESTING         Additions to petroleum and natural gas properties (5,385) (21,784) (32,864) (66,595) Additions to exploration and evaluation assets (68) (898) (231) (944) Purchase of producing petroleum and natural gas assets (1,053) - (6,898) (40) Additions to administrative assets - - - (6) Proceeds on sale of petroleum properties 12 - 195,764 - Changes in non-cash working capital (12,999) (7,186) (6,242) (12,642)  (19,493) (29,868) 149,529 (80,227)         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 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, 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, 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, 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 or loss 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 (loss) 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 (excluding derivative 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 finance income and then subtracting interest costs, and general and administrative costs on a per boe basis.Funds flow from operations is calculated as funds provided by operating activities from the statement of funds flows, adding the change in non-funds working capital and decommissioning 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 GAAP and therefore may not be comparable with the calculations of similar measures for other companies.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.All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.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. SOURCE: Vero Energy Inc.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