Vero Energy Inc. Announces Third Quarter 2011 Financial and Operating Results

CALGARY, Nov. 14, 2011 /CNW/ - Vero Energy Inc. (TSX - VRO) ("Vero" or the "Company") announces its financial and operating results for the third quarter of 2011.

Third Quarter 2011 Highlights

  • Daily volumes increased 11% to 9,262 boe/d over 8,335 boe/d from the third quarter of 2010.

  • Achieved funds flow from operations of $15.1 million, equating to $0.31 per share (basic and diluted).

  • Increased oil production by 110% to 1,339 bbls/d from 639 bbl/d in the same quarter of 2010.

  • Production revenue increased by 29% in the third quarter to $31.4 million from the same quarter in 2010.

  • Achieved an operating netback of $21.43 per boe and funds flow netback of $17.71 per boe representing a 12% and 13% increase respectively, in the third quarter of 2011 versus 2010.

  • Drilled 7 (5.7 net) horizontal wells with a 100% success rate.  Of the seven wells, 5 (4.1 net) targeted Cardium oil.

Fourth Quarter 2011 Update

  • Current production based on field estimates is approximately 9,600 boe/d (75% natural gas).

  • Drilled and completed 2 (1.7 net) Notikewin wells which are on production and drilled 2 (0.7 net) Cardium wells which will be completed shortly and expected to be on production in early December.

Selected financial and operating highlights for the third quarter of 2011 with comparisons to the third quarter of 2010 are set out below and should be read in conjunction with Vero's financial statements for the period ended September 30, 2011 as follows:

    Three Months ended
September 30,
    Nine months ended
September 30,
Financial ($000's except per share amounts)   2011     2010     %     2011     2010     %
Production revenue   31,365     24,295     29     97,097     81,250     20
Funds flow from operations (1)   15,085     12,002     26     50,976     41,479     23
    Per basic share   0.31     0.28     11     1.04     0.96     8
    Per diluted share   0.31     0.26     19     1.04     0.94     11
Net earnings (loss)   859     (1,575)     155     4,297     2,356     82
    Per basic share   0.02     (0.04)     150     0.09     0.05     80
    Per diluted share   0.02     (0.04)     150     0.09     0.05     80
Capital expenditures, net   27,240     32,136     (15)     94,825     86,192     10
Net debt (2)   167,322     131,978     27     167,322     131,978     27
                                   

Share Capital (000's)

                                 
Basic, weighted average   48,990     43,515     13     48,972     43,409     13
Basic, end of period   48,992     43,527     13     48,992     43,527     13
Fully diluted   53,570     47,394     13     53,570     47,394     13
                                   

Daily Production

                                 
Natural gas volumes (mcf/d)   42,244     39,076     8     42,631     40,683     5
Light oil (bbl/d)   1,339     639     110     1,118     558     100
Natural gas liquids (bbl/d)   883     1,183     (25)     1,121     1,245     (10)
Corporate (boe/d)   9,262     8,335     11     9,344     8,583     9
                                   

Realized Commodity Prices

                                 
Natural gas ($/mcf)   3.99     3.93     2     4.11     4.48     (8)
Light Oil ($/bbl)   86.60     70.38     23     89.10     72.67     23
Natural gas liquids ($/bbl)   63.91     55.31     16     72.07     60.07     20
Corporate ($/boe)   36.81     31.68     16     38.06     34.68     10
                                   
Netbacks ($/boe)                                  
Operating (4)   21.43     19.16     12     24.02     21.26     13
Funds flow   17.71     15.66     13     19.98     17.70     13
                                   
Wells drilled                                  
Gross   7     9     (22)     25     21     19
Net   5.7     7.2     (21)     19.7     17.8     11

(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 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 International Financial Reporting Standards ("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 (excluding bank debt) and bank debt (but excludes the potential future liability related to the mark-to-market measurement of derivative contracts). Net debt 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 total revenue less royalties, transportation and operating costs calculated on a per boe basis. Funds flow netback equals the operating netback less cash finance costs, general and administrative costs, realized gains and losses on derivative contracts, plus any interest income. Operating netback and funds flow netback do not have a standardized measure prescribed by IFRS and therefore may not be comparable with the calculations of similar measures for other companies.

FINANCIAL REVIEW

As a percentage of corporate production, liquids (oil and natural gas liquids) accounted for 24% of total production in the third quarter of 2011. Given the strong prices realized for Vero's oil and high quality NGL production, aggregate liquids revenue accounted for approximately 51% of total revenue during the third quarter. Total production increased by 11% over the third quarter of 2010 to average 9,262 boe/d.  For the year to date daily production was 9% higher at 9,344 boe/d from 8,583 in 2010. The increase in aggregate production levels accompanied by the increased contribution from the higher priced liquids production, delivered funds flow for the third quarter of $15.1 million. This translated into $0.31 per share on both a basic and diluted per share basis. The third quarter operating expenses averaged $8.58 per boe while for the year to date they were only 1% higher than the same period in 2010 at $8.22 per boe.

Royalty expense was higher in the third quarter at $5.45 per boe as increased oil prices, gross over-riding royalties on new wells and certain gas wells that quickly achieved their maximum 5% new well royalty rate all contributed to the increase from $3.40 in the third quarter of 2010. For the year to date, royalty expense was 17% higher at $4.40 per boe as compared to $3.77 in 2010. Operating netbacks increased by 12% to $21.43 per boe and funds flow netbacks increased by 13% to $17.71 per boe in the third quarter versus the same quarters in 2010. The Company realized $859 thousand in net earnings for the third quarter or $0.02 per share (basic and diluted). This compares to a $1.6 million loss realized in the third quarter of 2010. For the year to date in 2011 net earnings were $4.3 million. This translated into $0.09 per share (basic and diluted) compared to $0.05 (basic and diluted) for 2010.

Vero spent $32.2 million on its exploration and development program during the third quarter. 83% or $26.7 million of the capital program was devoted to drilling and completions while $4.6 million or 14% was spent on facilities and tie-ins. Vero also disposed of a non-core asset which included undeveloped lands and approximately 50 boe/d of production for net proceeds of $4.9 million. Total net debt amounted to $167 million at September 30, 2011, including bank debt of $138 million.

OPERATIONAL REVIEW

During the quarter, the Company participated in the drilling of 7 (5.7 net) horizontal wells. Of the seven wells, 5 (4.1 net) were Cardium oil wells, 1 (0.6 net) was a Wilrich gas well and the remaining 1 (0.97 net) was a Notikewin gas well.  For the nine months to date, Vero has drilled a total of 25 (19.9 net) wells with a 96% success rate.  Over the end of the quarter Vero had 3 (2.1 net) wells drilling; 1 (0.3 net) was a Cardium oil well and the other 2 (1.7 net) were Notikewin gas wells. These two wells were recently placed on production with initial choked rates of over 750 boe/d.

During the quarter a new Wilrich well in close proximity to our main Edson facility was placed on production offsetting a Wilrich well drilled one and a half years ago.  This well was drilled on a different orientation than the first and completed with fracture intervals of 75 to 100 meters versus 150 to 200 meters in the first well. The well averaged approximately 500 boe/d over the first two months and is still producing at rates and pressures approximately thirty percent higher than the original well.  One Notikewin well in the quarter experienced difficulties during drilling.  Intermediate casing was set but at this point in time has not been completed. The Company is currently determining how to continue operations on this well.  These difficulties coupled with gas well drilling that started later in the third quarter than previously planned has resulted in significant delays in the gas portion of the drilling program. Also one booster gas compressor was added in the quarter.

Cardium drilling during the quarter continues to meet or exceed our type curves.  Seven wells brought on during the quarter averaged approximately 200 boe/d over their first thirty days of production.  Four of these wells averaged approximately 162 boe/d over their first ninety days.  The focus for the fourth quarter will be on Cardium light oil.

For the fourth quarter, Vero expects to finish drilling and complete the three wells already started and further drill 4 (2.7 net) wells all of which are Cardium oil wells. This will bring total drilling for 2011 to 32 (24.6 net) wells of which 19 (13.9 net) will be Cardium oil wells and 7 (6.1 net) will be liquids rich Notikewin gas wells.

Production for the third quarter was 9,262 boe/d and was comprised of 76% natural gas. Third quarter production was impacted by ten third party turnarounds, which brought average production for the quarter down by approximately 400 boe/d. Delays in drilling and timing of bringing on gas production resulted in another change of 200 boe/d in the quarter.

OUTLOOK

Canadian natural gas prices for the fourth quarter are currently estimated to average $3.55 per mcf which will result in the lowest priced quarter of the year.  This price is also consistent with the current forward strip price for natural gas for all of 2012. Recent rig day rates have seen an increase of approximately six to eight percent and over the past year it is estimated that service costs have increased by between fifteen to twenty percent.  Therefore with the current level of natural gas prices and increased industry costs Vero does not have plans to drill any new gas locations in the fourth quarter.

Contrary to natural gas, oil prices are extremely robust with the fourth quarter of 2011 estimated to average approximately $95 per barrel with the current strip for 2012 even higher.  Therefore, the Company currently has one operated drilling rig targeting Cardium light oil for the remainder of 2011 even though Vero's oil wells typically average three to five times less initial production than gas wells. Depending on partner activities and timing, there could be 2-3 (0.7-1.0 net) non-operated Cardium locations drilled as well. Operating netbacks in this play currently are over $65 per boe and this is a prudent strategy for the Company.

As a result of this strategic shift to drilling all oil wells as well as the recent turnarounds of non-operated facilities, and delays in adding the higher relative volume gas wells Vero currently estimates that 2011 annual production will average 9,200-9,400 boed with associated exploration and development capital of $120-125 mm.

Vero continues to grow oil production and as a result is adding significant value.  Oil prices remain strong and even though there is potential volatility with the current European debt crisis, prices should remain strong for the year to come and beyond.  Significant value potential occurs around Vero's Duvernay rights. Industry land sales and activity have generated excitement around the Duvernay in and around the West Central area of Alberta.  Vero has fifty net sections that management believes is in the wet gas and/or oil window.  The Company has some lands around the record August land sale parcel, and a large portion of our lands are in proximity to the large land sales in late October/early November.  There are still no plans to spend capital on the Duvernay in 2012 as we continue to monitor offsetting drilling.

The Company is still actively working on the disposition of non-core assets that are not expected to have activity in near and midterm drilling plans. Capital expenditure plans and related guidance for 2012 are anticipated to be provided early in the new year.

Selected financial and operating highlights for the third quarter of 2011 with comparisons to the third quarter of 2010 are set out below:

                       
VERO ENERGY INC.

Balance Sheet
(in thousands of Canadian dollars) (unaudited)
                                                                                     September 30,
2011
      December 31,
2010
      January 1,
2010
ASSETS                      
CURRENT                      
  Accounts receivable     24,291       27,458       29,541
  Prepaid expenses and deposits     3,304       3,241       4,566
  Derivative contracts     2,018       -       2,289
      29,613       30,699       36,396
                       
Derivative contracts     280       -       -
Property, plant and equipment     410,285       352,007       272,343
Exploration and evaluation assets     14,474       19,495       15,302
Goodwill     19,913       19,913       19,913
      474,565       422,114       343,954
                       
LIABILITIES                      
CURRENT                      
  Accounts payable and accrued liabilities     56,998       60,349       49,574
  Derivative contracts     -       1,422       1,132
  Bank debt     137,919       94,164       77,719
  Deferred liability     -       5,062       -
      194,917       160,997       128,425
                       
Derivative contracts     -       -       113
Decommissioning liabilities     11,693       9,346       7,960
Deferred taxes     27,357       18,013       13,422
      233,967       188,356       149,920
                       
SHAREHOLDERS' EQUITY                      
  Share capital     216,678       216,174       180,617
  Contributed surplus     13,243       11,204       9,610
  Retained earnings     10,677       6,380       3,807
      240,598       233,758       194,034
      474,565       422,114       343,954

 
 
VERO ENERGY INC.

Statement of  Comprehensive Income (Loss) 
For the three and nine month periods ended September 30,
(in thousands of Canadian dollars, except per share data)(unaudited)
                               
      Three months ended
September 30,
      Nine months ended
September 30,
      2011       2010       2011       2010
REVENUE                              
  Petroleum and natural gas sales     31,365       24,295       97,097       81,250
  Royalties     (4,646)       (2,610)       (11,217)       (8,827)
      26,719       21,685       85,880       72,423
                               
EXPENSES                              
  Operating     7,308       5,750       20,971       19,000
  Transportation     1,153       1,245       3,631       3,614
  (Gains) losses on derivative contracts     (2,902)       1,067       (2,879)       (2,239)
  General and administrative     1,581       1,902       4,548       5,004
  Share based compensation     538       636       1,867       2,357
  Loss on disposal of assets     1,436       -       1,436       476
  Exploration and evaluation     2,324       680       5,357       2,292
  Depletion and depreciation     12,105       10,904       37,169       32,030
      23,543       22,184       72,100       62,534
                               
NET EARNINGS (LOSS) BEFORE FINANCE AND TAXES     3,176       (499)       13,780       9,889
                               
FINANCE                              
  Finance income     17       -       35       190
  Finance expenses     (1,807)       (1,517)       (5,223)       (4,387)
      (1,790)       (1,517)       (5,188)       (4,197)
                               
NET EARNINGS (LOSS) BEFORE TAXES     1,386       (2,016)       8,592       5,692
                               
TAXES                              
Deferred tax expense (recovery)     527       (442)       4,295       3,336
                               
                               
NET EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)     859       (1,574)       4,297       2,356
                               
NET  EARNINGS (LOSS) PER SHARE                              
  Basic     0.02       (0.04)       0.09       0.05
  Diluted     0.02       (0.04)       0.09       0.05

 
 
VERO ENERGY INC.

Statement of Cash Flows
For the three and nine months ended September 30,
(in thousands of Canadian dollars) (unaudited)
      Three months
ended
September 30
      Nine months
ended
September 30
      2011       2010       2011       2010
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:                              
                               
OPERATING                              
  Net earnings (loss)     859       (1,574)       4,297       2,356
  Adjustments for:                              
    Unrealized (gain) loss on derivative contracts     (2,970)       1,718       (3,721)       (1,607)
    Share based compensation     687       636       1,825       2,357
    Depletion and depreciation     12,105       10,904       37,169       32,030
    Accretion of decommissioning liabilities     117       81       318       239
    Exploration and evaluation expense     2,324       680       5,357       2,292
    Loss on disposal of assets     1,436       -       1,436       476
    Deferred tax expense (recovery)     527       (442)       4,295       3,336
             15,085       12,002       50,976       41,479
  Decommissioning costs incurred     (1)       (23)       (7)       (288)
  Changes in non-cash working capital     622       4,247       5,992       6,735
      15,706       16,226       56,961       47,926
                               
FINANCING                              
    Increase in bank debt     5,111       911       43,755       30,559
    Loans to officers / directors     -       -       -       2,289
    Proceeds from stock option exercises     20       54       348       1,035
      5,131       965       44,103       33,883
                               
INVESTING                              
  Additions to petroleum and natural gas properties     (32,043)       (30,036)       (98,638)       (80,967)
  Additions to exploration and evaluation assets     (109)       (2,270)       (1,053)       (8,021)
  Purchase of petroleum and natural gas assets     -       -       (40)       -
  Additions to administrative assets     (39)       -       (45)       (3)
  Proceeds on sale of petroleum properties     4,951       170       4,951       3,699
  Changes in non-cash working capital     6,403       14,945       (6,239)       3,483
      (20,837)       (17,191)       (101,064)       (81,809)
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 publicly traded Canadian energy company involved in the exploration, development and production of oil, natural gas and liquids in Alberta.  The Company's shares trade on The Toronto Stock Exchange under the symbol "VRO". Vero's latest presentation will be available on the Company's website on November 14, 2011.

READER ADVISORY

Forward Looking Statements:  Certain information regarding the Company in this news release including management's assessment of future plans and operations, current production estimates, forecast production estimates, initial production rates, drilling inventory and wells to be drilled, timing of drilling and tie-in of wells, productive capacity of new wells, potential prospectivity of our Cardium lands, future commodity mix, capital expenditures and the timing thereof and the potential impact of our capital expenditure plans on our corporate netbacks and corporate valuation 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, 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.  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.  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.

This press release is reproduced on Vero's website at www.veroenergy.ca.  Also for the latest presentation and other information about Vero Energy Inc., please visit the website (www.veroenergy.ca).

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

SOURCE Vero Energy Inc.

For further information:

Doug Bartole, President & CEO, at (403) 218-2063

Gerry Gilewicz, Vice-President Finance & Chief Financial Officer at (403) 693-3170

Scott Koyich, Investor Relations, (403) 714-5979

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