Vero Energy Inc. reports third quarter earnings increase of 1,255% and cash flow increase of 76%


    CALGARY, Oct. 29 /CNW/ - Vero Energy Inc. ("Vero" or the "Company")
(TSX-VRO) today announces its third quarter, 2008 financial results. Copies of
the financial statements and management discussion and analysis in respect
thereof for the quarter ended September 30, 2008 will be available, in due
course, through or by visiting Vero's website at

    Third Quarter 2008 Highlights

    -   Generated net earnings of $10.4 million in the quarter, a 1,255%
        increase over a loss of $902 thousand in the same quarter of 2007.

    -   Cash flow from operations increased 76% to $16.6 million or $0.50 per
        share (basic and diluted).

    -   Increased average daily production 28% to 6,236 boe/d (81% natural

    -   Maintained a low operating cost per barrel equivalent average of
        $6.05 for the nine months to date and $6.80 for the quarter.

    -   Achieved an operating netback of $32.17 per boe and cash flow netback
        of $28.91 per boe in the quarter, representing increases of 34% and
        37% respectively from 2007.

    -   Drilled 8 (5.3 net) wells with a 91% success rate including 3 (3 net)
        horizontal wells.

    Financial and operating highlights for the third quarter of 2008 with
comparisons to the third quarter of 2007 are as follows:

                                Three Months ended       Nine months ended
                                   September 30,            September 30,
    Financial ($000's except
     per share amounts)        2008    2007      %     2008    2007      %
    Production revenue        32,005  19,731      62 105,437  60,190      75
    Cash flow from
     operations(1)            16,584   9,425      76  61,232  29,622     107
      Per basic share           0.50    0.33      52    1.93    1.06      82
      Per diluted share         0.50    0.32      56    1.92    1.05      83
    Net earnings (loss)       10,421    (902)  1,255  22,944     322   7,025
      Per basic share           0.32   (0.03)  1,167    0.72    0.01   7,100
      Per diluted share         0.31   (0.03)  1,133    0.72    0.01   7,100
    Capital expenditures,
     net                      48,234  18,522     160  84,533  51,041      66
    Net debt(2)               67,725  53,002      28  67,725  53,002      28

    Share Capital (000's)
    Basic, weighted average   32,955  28,911      14  31,680  27,865      14
    Basic, end of period      33,433  28,911      16  33,433  28,911      16
    Fully diluted             36,416  31,339      16  36,416  31,339      16

    Daily Production
    Natural gas volumes
     (mcf/d)                  30,059  23,975      25  28,172  22,052      28
    Light oil (boe/d)            515     377      37     582     336      73
    Liquids (boe/d)              711     493      44     755     518      46
    Corporate (boe/d)          6,236   4,865      28   6,032   4,530      33

    Average Realized Prices
    Natural gas ($/mcf)         7.27    6.33      15    8.76    7.46      17
    Light Oil ($/bbl)         112.72   75.59      49  107.75   69.01      56
    Liquids ($/bbl)           100.07   69.67      44   99.67   63.36      57
    Corporate ($/boe)          55.78   44.08      27   63.79   48.67      31

    Netbacks ($/boe)
    Operating(4)               32.17   24.02      34   40.07   27.46      46
    Cash flow                  28.91   21.05      37   37.04   23.94      55

    Wells drilled
    Gross                          8      10     (20)     22      28     (21)
    Net                          5.3     6.6     (20)   15.2    17.8     (15)

    (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.


    Vero continues to generate solid cash flow and expect to continue to do
so for the remainder of this year and into 2009. Our excellent operating cost
structure, which is one of the lowest in our peer group, is directly
attributable to the economies of scale and high levels of operatorship in the
properties we control. Coupling this with top tier finding and development
costs that we have achieved, we continue to grow profitably. Vero's strong
financial results are the direct result of our operating excellence and
disciplined spending practices.
    The equity markets have suffered a setback and as investors' attention
turns to corporate fundamentals, we believe they will focus on investing in
companies which can provide profitable growth without the need for external
funding. I am pleased to say that Vero's diligence in maintaining a strong
balance sheet and concentration of its efforts on profitable drilling, along
with accretive acquisitions, will give us the financial resources to continue
with the execution of our plans. Our cash flow will be the main catalyst
providing us with the financial flexibility to pursue the most substantial
drilling inventory in our three years of existence. We currently anticipate
that we will show over 40% growth in 2009 average production over 2008 levels
in a profitable manner. We currently have budgeted for 2009 that our capital
spending will be equal to our projected cash flow.
    We believe the industry as a whole will high-grade its opportunities in
this uncertain environment of commodity prices, access to capital and credit.
Vero will be no different and we intend to concentrate our efforts in Edson
which is our most profitable area.
    In 2008 to date, Vero had operating costs of $6.05 per boe but in Edson
we are averaging $4.50 per boe thus allowing us to continue to show excellent
returns in a tough environment. To help ensure that we continue to enjoy low
operating costs and also control of our own destiny, we will build new
facilities and expand existing ones when required. We are currently working
with an industry partner in sharing the cost of expanding our 100% Edson
facility to 35 mmcfd, which was originally built in late 2007. This is
expected to be completed by mid-December and will increase Vero's through-put
capacity to 24.5 mmcfd. We are also expanding our pipeline infrastructure and
this will bring production currently going to third party facilities into the
Vero facility. Production of approximately 3 mmcfd has frequently been
curtailed and shut in throughout the third quarter and with some additional
disruptions into the fourth quarter. Also, our results with horizontal
drilling and completions continue to exceed expectations. This technology will
therefore be our main focus going forward. Currently there are two operated
drilling rigs in Edson, and both of these rigs are drilling horizontal wells.
    Vero currently anticipates growing by over 20% in average daily
production in the fourth quarter over the third quarter. This increase will
occur primarily with our internally focused drilling program. In addition, we
have entered into a definitive agreement to acquire, subject to satisfaction
of certain conditions including target shareholder approval, a private oil and
gas company for consideration consisting of Vero common shares. The
acquisition is currently expected to be completed by mid-November. This
private company is currently producing approximately 800 boe/d with 15,750 net
undeveloped acres entirely in our Edson area. As a result of the activity
throughout the remainder of the year and assuming completion of the pending
acquisition, our year end exit guidance has been increased from our current
7,600 - 8,000 boe/d to 8,400 - 8,800 boe/d depending solely on the timing of
projects. We expect to drill approximately 38 (28.5 net) wells in 2008. Our
strengthened undeveloped acreage position from land sales, acquisitions and
farm-ins is over 160,000 net acres (not including the pending acquisition) and
gives Vero over four years of drilling inventory.
    I look forward to reporting our future activities. Please look on our
website for an updated presentation by mid November.

    Douglas J. Bartole
    President and Chief Executive Officer


    Vero continued to grow in every respect during the third quarter of 2008.
Revenues increased by 62% after hedging while production increased by 28% to
average 6,236 boe/d as compared to 4,865 boe/d in the same quarter of last
year. A portion of the increase was related to the two corporate acquisitions
completed in the second quarter but also included the asset acquisition that
closed at the end of July. In addition, realized natural gas prices were 15%
higher in 2008 as compared to 2007 while oil prices were 49% higher and
liquids prices were 44% higher. Operating expenses continue to be one of
Vero's strongest hedges against fluctuating commodity prices. Operating
expenses were $6.80 per boe during the quarter even with the acquisitions that
had somewhat higher operating expenses associated with them. As a result, Vero
achieved $16.6 million in cash flow in the quarter or $0.50 per share (basic
and diluted). In a similar vein, net earnings were strong at $10.4 million
translating into $0.32 per basic share and $0.31 per diluted share. A
significant contributing factor to the net earnings increase was Vero's
depletion rate, which was reduced by 18% to $17.50 per boe from 2007 levels.
Strong drilling results and favorable acquisition metrics were the
contributors to this decline.
    Vero continued to be very active in its capital program. During the
quarter the Company spent $48.2 million including: $20.3 million for the asset
acquisition in July; $16.7 million in drilling and completing 8 (5.3 net)
wells; $8.8 million in equipping and tying-in new wells; $1.1 million in
shooting two 3D seismic programs; and $1.0 million in acquiring new Crown land
    The credit crisis and the general health of the United States economy
dominated the news to date in the third quarter. In the face of the spillover
of these events into the Canadian capital markets as well as declining
commodity prices, Vero has managed its financial health. With the cash flows
from the third quarter and the strength in its growing critical mass, the
Company has a manageable 1.0 times net debt to annualized cash flow. While
this ratio is higher than at the end of the second quarter, it was increased
mainly from the asset acquisition in July, which was financed entirely with
Vero's bank line of credit. It is currently anticipated that Vero will not
have to seek additional financing to execute its planned 2009 capital program.


    Edson, Alberta
    Edson remains Vero's largest producing property with production of
3,564 boe/d (81% natural gas) in the quarter. This accounted for 57% of total
corporate production. Production in the quarter was reduced as a third party
facility was shut down for a two week turnaround. There were continued
restrictions and curtailment of production in the south eastern portion
(Cyn-Pem) of the Edson area throughout the quarter and continuing into the
fourth quarter. As previously mentioned, Vero, along with an industry partner
will be expanding our current gas processing facility to 35 mmcfd. This will
increase our throughput to 24.5 mmcfd, reduce down time, and allow for
continued drilling in that area. The Company finished construction of a 12
mmcfd natural gas compression and dehydration facility during the quarter as
    The primary targets in Edson are the Rock Creek and Manville zones from
2,000-2,500 meters in depth which are characterized by gas with a high liquid
content, capable of generating liquid volumes of up to 30 bbls/mmcf. All the
wells drilled in the third quarter were in the Edson area. There were 8
(5.3 net) wells drilled with a success rate of 91% and this included 3
(3.0 net) horizontal wells. This brings the number of wells drilled to date in
this area to 18 (11.7 net) including 9 (7.2 net) horizontal wells. The Company
has an active program in the area for the fourth quarter. Plans are to drill
an additional 9 (9.0 net) wells which include 7 (7.0 net) horizontal wells.
Currently there are 17 (12.8 net) horizontal producing wells with an
additional 2 (2.0 net) drilling and 2 (2.0 net) being completed and tied in.
Results from horizontal drilling continue to meet or exceed Vero's targets for
both expected production rates and reserves.
    Vero's acreage in the area consists of 44,160 gross (21,581 net)
developed acres and 41,760 (28,604 net) undeveloped acres not including the
pending private company acquisition. It is expected that in due course, a
majority of the acreage will have at least two wells per section. Therefore,
while our acreage in Edson is a significant part of our total acreage, we
believe that the reserve potential in this area is a bigger part of this

    Whitecourt has become Vero's second largest producing area mainly as a
result of the three acquisitions completed to date in 2008. Production
averaged 1,322 boe/d (87% natural gas) in the third quarter representing a 54%
increase from second quarter volumes. Even though production volumes for the
area increased in the third quarter, similar to Edson we were adversely
impacted by a third party facility turnaround that reduced our expected
production. There are no plans to drill any new wells for the remainder of
2008 but we do have plans to drill a 100% horizontal well in the first quarter
of 2009.
    Vero currently controls 43,836 (23,000 net) developed acres and 77,280
(61,271 net) undeveloped acres in this area. The large increases in the
quarter came from the significant land positions acquired in this area from
the acquisitions.

    Corbett contributed approximately 12% to Vero's daily production average
in the third quarter while averaging 766 boe/d (71 % natural gas).
    Vero currently controls 10,878 (6,141 net) developed acres and 30,400
(23,155 net) undeveloped acres in this area.

    Other Areas
    Total production for non-core areas in the third quarter was 584 boe/d
(75 % natural gas). The largest of our non-core areas is Wilson Creek. Current
plans are to drill 5 (3.2 net) wells prior to year end.
    Vero has 56,687 (24,221 net) developed acres and 69,932 (46,576 net)
undeveloped acres in the Other Areas category.


    Below is selected financial statement information for the three month and
nine month periods ended September 30, 2008 with comparative data for 2007.
For full disclosure of Vero's financial statements with their accompanying
notes and the Management's Discussion and Analysis, please visit our website


    Consolidated Balance Sheets
    (in thousands of dollars)
                                                  September 30,  December 31,
                                                       2008          2007
                                                    (unaudited)   (audited)
      Accounts receivable                               23,904        16,767
      Prepaid expenses and deposits                      4,297         3,523
      Risk management contracts                          1,231             -
                                                        29,432        20,290

    Property and equipment                             242,388       171,727
    Goodwill                                            19,913        15,034
                                                       291,733       207,051

      Accounts payable and accrued liabilities          38,214        36,051
      Bank debt                                         57,712        46,013
                                                        95,926        82,064

    Asset retirement obligations                         4,786         2,641
    Future taxes                                        22,663        10,812
                                                       123,375        95,517

      Share capital                                    137,605       103,077
      Contributed surplus                                3,501         3,593
      Retained Earnings                                 27,252         4,864
                                                       168,358       111,534
                                                       291,733       207,051


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

                                  Three months ended      Nine months ended
                                      September 30            September 30
                                   2008        2007        2008        2007
      Production revenue          33,495      18,542     108,103      58,846
      Realized (loss) gain on
       risk management
       activities                 (1,490)      1,189      (2,666)      1,344
                                  32,005      19,731     105,437      60,190

      Royalties                   (8,857)     (5,551)    (27,123)    (17,013)
      Unrealized gain (loss)
       on risk management
       activities                  9,321        (733)      1,612           -
                                  32,469      13,447      79,926      43,177

      Operating                    3,903       2,754       9,994       7,558
      Transportation                 788         674       2,083       1,652
      General and administrative   1,263         729       3,226       2,532
      Stock based compensation       816         319       1,316       1,130
      Interest and bank charges      611         598       1,779       1,813
      Depletion, depreciation
       and accretion              10,039       9,543      28,591      27,216
                                  17,419      14,617      46,989      41,901

    INCOME BEFORE INCOME TAXES    15,050      (1,170)     32,937       1,276

      Future                       4,629        (268)      9,993         954
                                   4,629        (268)      9,993         954

     AND COMPREHENSIVE INCOME     10,421        (902)     22,944         322

     BEGINNING OF PERIOD          17,387       2,924       4,864       1,700

    Repurchase of shares            (556)          -        (556)          -

     END OF PERIOD                27,252       2,022      27,252       2,022

      Basic                         0.32       (0.03)       0.72        0.01
      Diluted                       0.31       (0.03)       0.72        0.01


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

                                  Three months ended      Nine months ended
                                      September 30            September 30
                                   2008        2007        2008        2007

      Net earnings (loss)         10,421        (902)     22,944         322
      Adjustments for:
        Unrealized (gain) loss
         on risk management
         activities               (9,321)        733      (1,612)          -
        Stock-based compensation     816         319       1,316       1,130
        Depletion, depreciation
         and accretion            10,039       9,543      28,591      27,216
        Future income taxes
         (recovery)                4,629        (268)      9,993         954
                                  16,584       9,425      61,232      29,622

      Changes in non-cash
       working capital             2,647         906      (3,473)     (3,756)
                                  19,231      10,331      57,759      25,866

      Increase (decrease)
       in bank debt               21,368        (773)      7,904       2,348
      Proceeds from issuance
       of common shares, net
       of share issue costs            -           -      16,758      17,936
      Repurchase of shares        (1,081)          -      (1,081)          -
      Stock option exercises       3,434           -       4,378          21
                                  23,721        (773)     27,959      20,305

      Corporate acquisitions           -           -      (2,606)          -
      Additions to petroleum and
       natural gas properties    (27,893)    (18,513)    (61,568)    (48,530)
      Purchase of petroleum and
       natural gas properties    (20,312)          -     (20,312)     (2,478)
      Additions to
       administrative assets         (29)         (9)        (47)        (33)
      Changes in non-cash
       working capital             5,282       8,964      (1,185)      4,870
                                 (42,952)     (9,558)    (85,718)    (46,171)

     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 2008 operations.
    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, the anticipated acquisition and
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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