Vero Energy Inc. announces 16% production growth in the second quarter of 2009


    CALGARY, Aug. 6 /CNW/ - Vero Energy Inc. ("Vero" or the "Company")
(TSX-VRO) today announces its second quarter, 2009 financial results. Copies
of the financial statements and management discussion and analysis in respect
thereof for the quarter ended June 30, 2009 will be available, in due course,
through or by visiting Vero's website at

    Second Quarter 2009 Highlights

    -   Increased average daily production 16% to 7,040 boe/d in 2009 from
        6,087 boe/d in the second quarter of 2008.
    -   Cash flow from operations was $5.8 million equating to $0.15 per
        share (basic and diluted).
    -   Closed a bought-deal equity financing of 4 million shares for gross
        proceeds of $15 million in May.
    -   Capital spending was $ 1.7 million resulting in reducing net debt to
        $106 million at the end of the second quarter. Net debt was therefore
        down 14% from $123,973 at the end of the first quarter.

    Financial and operating highlights for the first quarter of 2009 with
comparisons to the first quarter of 2008 are as follows:

                                Three Months ended       Six months ended
                                     June 30,                June 30,
    Financial ($000's except ------------------------------------------------
     per share amounts)        2009    2008      %     2009    2008      %
    Production revenue       17,150  42,264    (59)  39,285  73,432      (47)
    Cash flow from
     operations(1)            5,767  26,805    (78)  13,969  44,647      (69)
      Per basic share          0.15    0.84    (82)    0.37    1.44      (74)
      Per diluted share        0.15    0.82    (82)    0.37    1.41      (74)
    Net (loss) earnings     (10,748)  8,740   (223) (15,443) 12,523     (223)
      Per basic share         (0.28)   0.27   (203)   (0.41)   0.40     (203)
      Per diluted share       (0.28)   0.26   (206)   (0.41)   0.39     (205)
    Capital expenditures,
     net                      1,717  16,411    (90)  29,895  36,299      (18)
    Net debt(2)             106,000  38,428    176  106,000  38,428      176

    Share Capital (000's)
    Basic, weighted
     average                 38,710  32,475     19   37,837  31,036       22
    Basic, end of period     40,952  32,884     25   40,952  32,884       25
    Fully diluted            43,917  35,429     24   43,917  35,429       24

    Daily Production
    Natural gas volumes
     (mcf/d)                 34,427  27,705     24   34,960  27,218       28
    Light oil (boe/d)           314     666    (53)     370     616      (40)
    Liquids (boe/d)             987     804     23      998     777       28
    Corporate (boe/d)         7,040   6,087     16    7,195   5,929       21

    Average Realized Prices
    Natural gas ($/mcf)        3.92   11.10    (65)    4.56    9.83      (54)
    Light Oil ($/bbl)         59.28  120.61    (51)   51.30  105.65      (51)
    Liquids ($/bbl)           40.38  111.23    (64)   41.31   99.49      (58)
    Corporate ($/boe)         27.49   76.30    (64)   30.52   68.05      (55)

    Netbacks ($/boe)
    Operating(4)              13.38   51.31    (74)   14.41   44.27      (67)
    Cash flow                  9.00   48.38    (81)   10.73   41.37      (74)

    Wells drilled
    Gross                         -       6       -       7      14      (50)
    Net                           -     4.4       -     6.4     9.9      (35)

    (1) Cash flow from operations is calculated as cash provided by operating
        activities from the statement of cash flows, adding change in non-
        cash working capital and asset retirement expenditures. Cash flow
        from operations is used to analyze the Company's operating
        performance and leverage. Cash flow from operations does not have a
        standardized measure prescribed by Canadian Generally Accepted
        Accounting Principles 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 mar-
        to-market measurement of hedges). It does not have a standardized
        meaning prescribed by Generally Accepted Accounting Principles 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
    (4) Operating netback equals total revenue less royalties, transportation
        and operating costs calculated on a per boe basis. Operating netback
        and cash flow from operations netback do not have a standardized
        measure prescribed by Canadian Generally Accepted Accounting
        Principles and therefore may not be comparable with the calculations
        of similar measures for other companies.


    Commodity prices have warranted prudent capital spending and Vero has
minimized spending in the second quarter and into the third quarter to date.
Oil prices have recovered somewhat from first quarter levels, but natural gas
prices continued to weaken throughout the second quarter and the resulting
decline in cash flow has plagued natural gas producers. Excess natural gas
supply is the message continually heard today and this comes as a result of
increased capital spending from 2007 and extending into 2008. The subsequent
contraction of economic activity late in 2008 throughout North America
exacerbated the situation. The third quarter of 2009 so far suggests continued
weak prices as storage in North America is expected to reach the highest
levels recorded at the end of injection season.
    Vero's production is still strong. In July we averaged approximately
7,300 boe/d. Current production curtailments are approximately 660 boe/d,
which includes: 150 boe/d recently shut-in due to low commodity prices; 110
boe/d is deferred due to requiring a capital investment that is not justified
at current commodity prices; and 400 boe/d is currently restricted. The
Company plans to resume drilling on a slow and paced basis in the third
quarter. However, if commodity prices remain low, production may be restricted
on new wells by as much as 75% of the flush rates, which typically experiences
3 - 4 mmcfd per horizontal well, until prices improve. As a result of a
combination of: the deferrals in starting-up wells drilled in the first
quarter to April 1 to maximize the Alberta Royalty Incentive Program; the
previously mentioned reductions in the second quarter; current and potential
future shut in production; and the potential for curbing rates of new wells in
the upcoming months; the average rate for 2009 is now projected to be
approximately 7,100-7,300 boe/d. Vero will continue to manage its capital
spending in light of these conditions. Vero's strategy going into the latter
half of 2009 is one of flexibility. Our flexible capital plan has been a
recipe for weathering the current low price storm.
    As a result of low prices, North American natural gas drilling continues
to experience significantly reduced levels of activity. Due to the nature of
the tighter gas being exploited, declines in North America have doubled in the
past twenty years and have increased fifty percent to 30 % per annum just in
the past six years. At the end of July active, natural gas drilling rigs are
at 40% of the levels experienced a year ago, while the second quarter had an
even lower percentage of wells drilled year-over-year. Our views have been
consistent through the last few quarters, and we continue to believe that
reduced well counts coupled with high decline rates from new wells and
increased demand from an improving economy will correct the natural gas supply
imbalance by late 2009 and into the first quarter of 2010. The current
oversupply will switch to undersupply and this will improve the commodity
price environment. Looking back in the last ten years there were only two
years that the price of natural gas averaged over $7 / mmcf and well run
companies with good cost structures were able to show very good returns and
growth. To add to our optimism, the current Alberta Government drilling
incentives have now been extended until April 1, 2011, enhancing the core of
Vero's program in West Central Alberta. We believe Vero's prospects rank
amongst the most competitive natural gas resources in North America. Early
indications are, as the company is preparing to drill in the latter half of
the year, that there are going to be significant costs savings from the
service side continuing to add to the returns for our company.
    Minimal capital spending in the last five months has allowed Vero's team
to spend significant time doing look-backs and evaluations. The operations
group have worked on reducing operating costs and we are starting to see the
benefits. They have done economics for shutting-in marginal production and
have set price hurdles for shutting in higher cost production. They are
currently focussing on opportunities to optimize drilling and completion
operations about which we are very excited as this has the potential to
improve our already industry leading low cost activities. The company has a
drilling program that will be able to add production quickly in a higher
natural gas price environment. Preparation is the key and Vero is poised, both
financially and operationally to expand quickly when this situation reverses
    In summary, Vero has enjoyed a low operating and finding and developing
cost structure and this is testimony to the strength and depth of its
technical team. These attributes coupled with our solid strategic plan will
allow Vero to withstand these difficult times and be the key drivers for its
future success. Vero's production, reserves and team are all solid. We
continue to focus on profitable growth while remaining flexible. This will
ensure that we are positioned to take advantage of opportunities that are sure
to arise in the upcoming months.


    In the face of steadily declining natural gas prices in the second
quarter of 2009, Vero delivered a solid, 16% increase in production levels
from the second quarter of 2008 and a 21% increase for the year to date in
2009. Vero averaged 7,040 boe/d in the second quarter of 2009 versus 6,087 in
the second quarter of 2008. Cash flow from operations in the second quarter
was $5.8 million or $0.15 per share compared with $26.8 million or $0.84 per
share in the comparable quarter of 2008. The major reason for the decline in
cash flow was the decrease in average commodity prices of 64% from 2008
levels. Leading the way was a 65% decrease in natural gas prices, which was
followed closely by a 64% decrease in natural gas liquids prices and then a
51% decrease in oil prices from the same quarter in 2008. Vero curtailed its
capital spending in the second quarter to a "maintenance capital" level,
wherein we spent capital only on projects to either clean up leases or enhance
existing production. In aggregate Vero spent $1.7 million on capital
expenditures during the quarter. The capital program is consistent with prior
years wherein Vero has spent more aggressively in the first quarter and then
let cash flow for the second quarter reduce the net debt. Vero remains
optimistic about the future of the industry and believes that natural gas
prices will recover later this year and extending into 2010. Vero's net debt
was $106.0 million at June 30, 2009 and the reduction from $123.4 million at
the end of the first quarter was attributable to both the cash flow realized
in the second quarter of $5.8 million and $13.9 million in net proceeds
realized from an equity issuance, which closed in May.


    Edson, Alberta
    Edson continues to be Vero's largest producing property with production
of 5,168 boe/d (83% natural gas) in the second quarter of 2009 which
represents 73% of total corporate production. In total, approximately 750
boe/d was lost in the quarter due to external influences. These issues, which
were outside the control of the Company, caused volumes to be lower than
expected in the quarter. As a result an average of 540 boe/d for the quarter
was lost due to three non-operated gas facility turnarounds, the longest of
which lasted three weeks. An additional 30 boe/d of uneconomic production was
shut-in, another 180 boe/d which was shut-in while being re-routed to another
    In the second quarter, Vero commenced the production from four wells
drilled in the first quarter to take advantage of the Alberta 5% crown royalty
rate for new wells commencing production on or after April 1, 2009.
    Vero's primary geological targets in Edson are in the Mannville and Rock
Creek zones, which range in depth from 2,000 to 2,600 meters and are
characterized by gas with a high liquid content, capable of generating liquid
volumes of up to 40 bbls/mmcf. Recent and near term future drilling plans are
focused on defining the emerging resource potential of the Mannville zones.
Vero continues to technically evaluate and optimize its horizontal drilling
and completion techniques including drilling lengths, number of fracs and frac
sizes. Plans for the second half of the year will be focused on drilling in
the Edson area with 7 (6.0 net) wells including 6 (5.0 net) horizontal wells.
    Vero's acreage in the area consists of 68,000 gross (38,040 net)
developed acres and 67,200 (50,984 net) undeveloped acres. A majority of the
acreage in Edson has potential for at least two wells per section and the
Company has an ongoing program of making applications to the regulator for
down spacing approvals thereby increasing well inventory. Notwithstanding our
acreage in Edson is a significant part of Vero's total acreage, we continue to
stress that the reserve potential in this area is an even more important part
of the area development plan.
    With Vero's relatively low costs at Edson, in both capital and operating,
it has the flexibility to respond quickly and efficiently to prevailing
commodity prices. Coupling facility and operational control to a high quality
inventory, characterized by short on-stream cycle time, will allow Vero the
opportunity to create significant value as commodity prices recover. The
Company is also in a position to prudently take advantage of the Alberta
drilling and royalty incentive programs announced in March of this year.

    Whitecourt is Vero's second largest producing area primarily as a result
of the three acquisitions completed in 2008. Production averaged 779 boe/d
(85% natural gas) in the second quarter. During the quarter approximately 50
boe/d of uneconomic production was shut-in.
    The Whitecourt area has a number of tight gas drilling and down-spacing
opportunities which are similar to the types of targets that have been
successfully exploited with horizontal drilling and multi-fracs in the Edson
area. The Company has a number of these opportunities that can be executed
upon as commodity prices improve. Our focus during the remainder of the year
will be on operating efficiencies and continuing to augment our portfolio with
drilling and enhancement projects.
    Vero currently controls 41,918 (22,442 net) developed acres and 57,760
(43,705 net) undeveloped acres in this area.

    Corbett contributed approximately 6% to Vero's daily production average
in the second quarter while averaging 426 boe/d (70 % natural gas). Although
no wells have been drilled in the Corbett area since January 2008, with the
royalty incentives announced in March of this year we are re-evaluating the
economics of drilling here and as such are prepared and currently have three
wells licensed for drilling.
    Vero currently controls 8,958 (4,549 net) developed acres and 19,520
(17,385 net) undeveloped acres in this area.

    Other Areas
    Total production for non-core areas in the third quarter was 667 boe/d
(74 % natural gas). The largest of our non-core areas is Wilson Creek. Vero
has 65,128 (29,227 net) developed acres and 79,486 (57,967 net) undeveloped
acres in the Other Areas, non-core category.


    Below is selected financial statement information for the three and six
month periods ended June 30, 2009 and 2008. For full disclosure of Vero's
financial statements with their accompanying notes and the Management's
Discussion and Analysis, please visit our website or SEDAR.


    Consolidated Balance Sheets
    (in thousands of dollars)
                                                       June 30,  December 31,
                                                         2009        2008
                                                     (unaudited)   (audited)
      Accounts receivable                                 17,479      29,218
      Prepaid expenses and deposits                        6,498       5,294
      Loans receivable                                     2,856         350
                                                          26,833      34,862

    Property and equipment                               302,736     297,697
    Goodwill                                              19,913      19,913
                                                         349,482     352,472

      Accounts payable and accrued liabilities            28,864      63,354
      Risk management                                      5,344           -
      Bank debt                                          103,969      75,419
                                                         138,177     138,773

    Asset retirement obligations                           5,815       5,570
    Future taxes                                          17,382      17,416
                                                         161,374     161,759

      Share capital                                      169,394     160,103
      Contributed surplus                                  8,317       4,759
      Retained Earnings                                   10,397      25,851
                                                         188,108     190,713
                                                         349,482     352,472


    Consolidated Statement of Operations, Comprehensive (Loss) Income and
    Retained Earnings
    For the three and six month periods ended June 30,
    (in thousands of dollars, except per share data)(unaudited)

                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2009        2008        2009        2008
      Production revenue          17,612      43,440      39,747      74,608
      Realized loss on risk
       management activities        (462)     (1,176)       (462)     (1,176)
                                  17,150      42,264      39,285      73,432
      Royalties                   (2,177)     (9,774)     (7,434)    (18,266)
      Unrealized loss
       on risk management
       activities                 (5,344)     (4,240)     (5,344)     (7,708)
      Interest and other              21           -          42           -
                                   9,650      28,250      26,549      47,458

      Operating                    5,583       3,398      11,404       6,092
      Transportation                 818         669       1,682       1,295
      General and administrative   1,749       1,072       2,945       1,964
      Stock based compensation     2,219         314       3,558         500
      Interest and bank charges    1,077         546       1,893       1,168
      Depletion, depreciation
       and accretion              12,491       9,799      25,101      18,552
                                  23,937      15,798      46,583      29,571

     INCOME TAXES                (14,287)     12,452     (20,034)     17,887

      Future tax (recovery)
       expense                    (3,539)      3,712      (4,591)      5,364
                                  (3,539)      3,712      (4,591)      5,364

     COMPREHENSIVE (LOSS) INCOME (10,748)      8,740     (15,443)     12,523

     OF PERIOD                    21,145       8,647      25,851       4,864

    Repurchase of shares               -           -         (11)          -

     PERIOD                       10,397      17,387      10,397      17,387

     PER SHARE (Note 10)
      Basic                       (0.28)        0.27      (0.41)        0.40
      Diluted                     (0.28)        0.26      (0.41)        0.39


    Consolidated Statement of Cash Flows
    For the three and six month periods ended June 30,
    (in thousands of dollars, except per share data)(unaudited)

                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2009        2008        2009        2008

      Net (loss) earnings        (10,748)      8,740     (15,443)     12,523
      Adjustments for:
        Unrealized loss on risk
         management activities     5,344       4,240       5,344       7,708
        Stock-based compensation   2,219         314       3,558         500
        Depletion, depreciation
         and accretion            12,491       9,799      25,101      18,552
        Future income taxes       (3,539)      3,712      (4,591)      5,364
                                   5,767      26,805      13,969      44,647
      Changes in non-cash
       working capital             2,677      (3,655)    (11,373)     (6,120)
                                   8,444      23,150       2,596      38,527

      Increase (decrease) in
       bank debt                   1,521      (3,529)     28,550     (13,464)
      Proceeds from issuance of
      common shares, net of share
       issue costs                13,923          (3)     13,923      16,758
      (Increase) decrease in
       related party loans         1,167           -      (2,506)          -
      Stock option exercises           -         945           -         945
      Repurchase of shares             -           -         (86)          -
                                  16,611      (2,587)     39,881       4,239

      Corporate acquisitions           -      (2,606)          -      (2,606)
      Additions to petroleum and
       natural gas properties     (1,715)    (13,792)    (30,033)    (33,675)
      Proceeds on sale of
       petroleum properties            -           -         145           -
      Additions to administrative
       assets                         (2)        (13)         (7)        (18)
      Changes in non-cash
       working capital           (23,338)     (4,152)    (12,582)     (6,467)
                                 (25,055)    (20,563)    (42,477)    (42,766)

     AND CASH EQUIVALENTS              -           -           -           -

     BEGINNING OF PERIOD               -           -           -           -

     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 view the Vero Energy website at for the latest corporate presentation and details of
anticipated 2009 operations.

    The Toronto Stock Exchange has neither approved or disapproved of the
    information contained herein.

    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.


    Forward Looking Statements: Certain information regarding the Company in
this news release including management's assessment of future plans and
operations, production estimates, drilling inventory and wells to be drilled,
timing of drilling and tie-in of wells, productive capacity of new wells,
capital expenditures and the timing thereof, 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 (, and the Company's website
( 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

    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. Mboe means thousands of barrels of oil

    Non-GAAP terms: this press release contains the terms "cash flow from
operations" and "netbacks" which are not terms recognized under Generally
Accepted Accounting Policies ("GAAP"). The Company uses these measures to help
evaluate its performance as well as to evaluate acquisitions. The Company
considers cash 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, cash flow from
operating activities as determined in accordance with Canadian GAAP as an
indicator of Vero's performance. Vero's determination of cash flow from
operations may not be comparable to that reported by other companies. The
reconciliation between net income and cash flow from operations can be found
in the statement of cash 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 and
subtracting royalties, operating expenses and transportations costs on a per
boe basis. Cash flow netbacks are calculated by taking the operating netback
and subtracting interest costs, and general and administrative costs on a per
boe basis.

    %SEDAR: 00022902E

For further information:

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:

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