On Wednesday, Vermilion Energy (NYSE:VET) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Vermilion Energy Inc reported Q1 2026 production volumes averaging 125,600 boe per day, exceeding the upper end of guidance, largely driven by strong deep basin performance and new Montney wells.

The company generated $232 million in funds from operations with $135 million in capital expenditures, resulting in $98 million of free cash flow and reduced net debt by $50 million to $1.29 billion.

Operational highlights include joining the Rockies LNG Consortium, acquiring additional assets in Germany, and divesting interests in Croatia to focus on debt reduction and strategic asset repositioning.

Vermilion Energy Inc saw an increase in realized oil prices by over 20% and achieved a European gas sales price of $16 per MMBtu, with expectations for continued high pricing in the coming quarters.

Future guidance anticipates production to average between 123,000 and 125,000 boe per day in Q2 2026, with an increased focus on liquids-rich production to capitalize on favorable pricing.

Full Transcript

OPERATOR

Good morning ladies and gentlemen and welcome to the Vermillion Q1 2026 conference call. this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for an operator. This call is being recorded on May 6, 2026. I would now like to call turn the call over to Dion Hatcher, President and CEO. Please go ahead.

Dion Hatcher (President and CEO)

Good morning ladies and gentlemen. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glamstad, Vice President and CFO Darcy Kirwan, Vice President International and HSE Brandon Kuwata, Vice President, North America Laura Conrad, Vice President Business Development and Travis Thorogood, Director of Investor Relations and Corporate Planning. Please refer to our advisory and forward looking statements in our Q1 release. It describes the forward looking information, non GAAP measures and oil and gas terms used today and it aligns risk factors and assumptions relevant to this discussion. I'd like to begin today with a comment on the macro environment. First quarter of 2026 was marked by heightened geopolitical uncertainty but continue in impact seeing the global energy targets today. This uncertainty underscores the critical importance of energy security. Vermilion's substantial resource base with exposure to multiple commodities including gas production in Europe and liquids production tied to Brent benchmarks provides unique exposure to global prices. This diversity of production extends to our gas weighted assets in Canada. We have strategically positioned ourselves in the oily window in the Montney and have numerous liquid-sweet zones in the Deep Basin. Operationally we delivered another strong quarter with Production volumes averaging 125,600 boe per day exceeding the upper end of our guidance. Canadian operations contributed an average of 99,700 boe per day. That's a 10% increase over the prior quarter driven by very strong deep basin performance and new Montney wells brought online ahead of schedule. International operations averaged 25,900 boe per day. Now that's reflective of cyclone related downtime in Australia and natural declines in European assets which is prior to the next German gas fall coming online in mid year. In total our production mix consisted of approximately 59% Canadian natural gas, 13% European natural gas and 28% liquids with those liquids largely priced off of Brent and WTI. Our realized oil price increased by over 20% from the prior quarter while our European gas production achieved an average sales price of approximately $16 per MMBtu. This meant that nearly 80% of our Q1 revenue was driven by European gas and liquids production. This underscores the value of our exposure to global pricing. Market fundamentals for European gas remain very supportive with Q2 pricing in excess of $20 per MMBQ that is over 10 times higher than the AECO pricing in Q2. The next four quarters are expected to average approximately $20 per MMBtu. Disruptions in the Strait of Hormuz have impacted global LNG flows at a time when European gas inventories are at multi year lows. With storage levels in Germany at about 25% and the Netherlands at 10%, European countries will need to add approximately 2 TCF of gas to storage by November to meet the mandated 80% capacity levels requiring competitive action in the LNG market. Of note, we continue to see a more positive tone from governments recognizing Vermillion as a responsible operator with decades of experience, one who has a key role to play in their energy landscape, further enhance our exposure to premium price gas markets. We recently joined the Rockies LNG Consortium to evaluate delivering a portion of our Montney gas to the Cedar LNG project. This would complement our existing agreement on the alliance pipeline that connects us to the premium price Chicago hub for pricing average approximately $5 per MMBtu in Q1. We'll now pass over to Larry to discuss Q1 results in more depth.

Lars Glamstad

Thank you Dion. In the quarter, Vermillion generated 232 million of funds from operations with 135 million of E&D capital expenditures resulting in 98 million of free cash flow. Net debt was reduced by an additional 50 million to 1.29 billion as of March 31, bringing our total debt reduction to 770 million over the past year. The timing of a lifting in France reduced Q1 funds from operations (FFO) as a result of timing, this reduced Q1 funds from operations (FFO) by 10 million but will benefit Q2 funds from operations (FFO) by 13 million due to the increase in the dated Brent contract. Debt reduction remains a priority and we now have more visibility to our 1 billion net debt target through our recent deleveraging resulting from strong operational execution and an improving commodity price outlook. This focus on debt reduction has resulted in a 40% reduction in interest costs per boe versus Q1 of 2025 and our cored up asset base has driven Q1G&A per boe down by over 50% versus 25. In addition to the $50 million of debt reduction this quarter, we also paid $21 million to shareholders in dividends and repurchased $5 million of shares through our NCIB.

Lars Glamstad

With the move higher in oil and European gas prices in March, we recognized a loss on hedges in the quarter. It is important to note that this is largely driven by non cash losses on hedges in place for future quarters that the portion of our production that remains unhedged will stand to benefit from increased pricing going forward. The realized portion of hedge loss losses in the quarter was 15 million and for the balance of the unrealized hedge loss to be realized, pricing would have to remain at 3-31-2026 levels for the duration of our current hedge book.

Lars Glamstad

For additional context, we have updated our forecast of 2026 excess free cash flow in our most recent corporate presentation and after incorporating current prices and the current 2026 estimated realized hedge losses, Vermilion will generate double the EFCF when compared to our 2026 budget projections. On the operations front, we maintained a 3 rig drilling program in the deep basin, drilling 10 wells, completing 14 and bringing on production 18 liquids rich gas wells.

Lars Glamstad

Several of these wells ranked among the best wells in Alberta throughout the quarter. We have now shifted our deep basin drilling to higher liquids rate wells to capitalize on favorable pricing which highlights the flexibility of our asset base and depth of inventory. In the Montney we drilled five, completed six and brought online six liquids rich gas wells. These wells were brought on ahead of schedule and with strong initial oil rates. While also coming in at a lower capital cost than we had previously guided to, we achieved another milestone.

Lars Glamstad

Our planned per well cost in the Montney is now 8.2 million, down 300,000 from 8.5 million previously in Europe. We are on track to bring the first visahorse well online in Germany by mid-2026, planned to spud follow up wells on the Balmesen license early next year and expect to commence drilling in the Netherlands in the second half of 2026. These activities support regional energy security through reliable lower emissions gas compared to imported alternatives in Australia. Our operations in the quarter were impacted by two cyclone events, the first consecutive direct hits ever. We are proud to say that we successfully managed all aspects of the safe shut in of operations and evacuation of personnel, with production resuming subsequent to the quarter following necessary repairs. While production operations were shut in, we were able to export 300,000 barrels of oil in February. During the quarter we signed an agreement to acquire producing assets in Germany, adding approximately 1,000 boe a day of low decline.

Lars Glamstad

Production weighted 85% to natural gas which increases our European TTF linked gas and Brent linked oil production, enhances cash flow and provides strategic infrastructure control the transaction is expected to close in the second half of 2026. We also announced the award of 3 new concessions in the North German basin, doubling our acreage to well over 1 million net acres. Finally, we signed an agreement to divest our remaining 60% interest in the SA7 block in Croatia for net proceeds of approximately 15 million euros or 24 million Canadian.

Lars Glamstad

Proceeds from this sale will primarily reduce debt with the transaction expected to close in the second half of the year. These recent steps are aligned with our strategy to reposition our asset base to further enhance long term profitability. Operational momentum remains strong and we continue to trend toward the upper end of our full year production guidance range without an increase to our capital budget. We will actively manage around lower ECO pricing to prioritize value over volumes and we expect Q2 2026 production to average between 123,000 and and 125,000 boe a day. With our focus on liquids rich production liquids weighting is expected to increase from 28% in Q1 to approximately 31% in Q2. I will now pass it back to Dion.

Dion Hatcher (President and CEO)

Thank you Laris. Also like to thank our Australia staff for their outstanding commitment over the last several months. I've been with Vermillion for 20 years and in that time frame we've never experienced back to back cyclone events. Being hit by a Category 3 storm followed by a Category 4 storm shortly thereafter was a real test of our team and they performed exceptionally well in preparing for the storms, repairing our platform and safely restoring production. In summary, this was another strong quarter for Vermillion. Our reposition portfolio and focus on operational excellence has reduced our unit cost structure and delivered production above our expectations. Our controllable expenses I.e. operating transportation, G and A and interest was lower by 25% compared to Q1 2025. Our opex was down $2 boe or 14%, GNA was down $2 per boe or over 50% and interest was down almost $2 per boe or over 40%. Lower cost structure helped reduce net debt by another 50 million this quarter, bringing the total reduction to 770 million since Q1 of last year. These gains are coupled with our improving capital efficiencies in the Montney. We have reduced our planned capital cost per well by another 300,000, improving full cycle economics on our Montney asset which translates to another 60 million reduction of future capital requirements bringing the total reduction in the last two years over $250 million. In the deep basin we continue to realize operational wins we're now starting to exceed the $200 million of synergies that we estimated shortly after closing the acquisition. And in Europe we continue to see steady production from the Asterix well and advance the work to support first production from our Vista Horst well, our largest discovery in Europe to date, along with other key infrastructures supporting growing German gas production over time. In closing, we built a very large resource base with 1.3 million net acres in Canada and over 2 million net acres in Northern Europe. This long duration asset base compared with our strong technical teams, capital allocation flexibility and a focus on operational excellence when combined with only 153 million shares is issued vermillion to generate growing and sustainable free cash flow per share. With that, we'll now open the line for questions.

OPERATOR

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one. On your touch tone phone you will hear a prompt that your hand has been raised. Should you wish to remove your hand from the cue, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. Just a moment for your first question. Your first question comes from Jeremy McCrae with BMO Capital Markets. Please go ahead.

Jeremy McCrae (Equity Analyst at BMO Capital Markets)

Yeah, hi guys. I just want to understand more about Germany here. Your growth plans, what this new acreage potentially holds. Is there any, you know, loosening regulations? Just can you give us a bit more of a, you know, the five year outlook here for Germany and if it can be a much bigger part of the vermilion portfolio.

Dion Hatcher (President and CEO)

Oh thanks. Thanks Jeremy for the question. I'll just kick it off here before I pass it over to Darcy. I mean I just want to say I think Germany is core to us. We just spent a few weeks there and really exciting with first Asterix well as noted continue to produce strong and the second well Vista Horst coming on here in a matter of weeks by mid year and so it's looking really good and more importantly just the size of the resource. What we've said in our investor day is our plan is to double Germany production by 2030. But the exciting thing for us is that's only 2.9 net wells of the 30 that we've identified. But with that Darcy, maybe you want to provide some color on where we are but also maybe the regulatory environment we're getting.

Darcy Kirwan

Yeah, thanks Jeremy for the question. I think you made reference to this new exploration land that we've acquired. So we are very excited about these three additional exploration concessions that we've gotten in Germany brings our total acreage to well over a million acres. This acreage, it's located in the same fairway where we've had historical success in the Netherlands and more recent success in Germany. So we're on trend with those, all of those discoveries and we see potential certainly on these new concessions for additional discoveries. You know, they've just been granted to us. So we do need some time to evaluate this new acreage and, and understand exactly what's there before we kind of translate that into, into specific drilling targets. But you know, we have a decade of experience and a decade of running room ahead of us. So this really just adds to our position in terms of the regulatory environment. You know, I think Germany has proven to be a pretty practical country to work in. We've had some success in getting permits and working with both the local and the federal governments to bring these discoveries on. What we have seen in Germany specifically and more broadly across Europe is a much more receptive environment when we're talking to host governments around the importance of domestic gas production and its importance to security of supply. So you know, we've always kind of enjoyed that in Germany, but again it's continuing to improve. Starting to see discussions both publicly and within government in the Netherlands about the importance of security of supply and the importance of domestic production. Starting to hear noises above from countries like Ireland and France about, you know, the wisdom of some of their production and exploration bands and whether they should be re looking at those sort of things. So I think the, the, the environment is much more open for what we're trying to do and I think a recognition of that what we're doing is important to, to energy security in Europe.

Jeremy McCrae (Equity Analyst at BMO Capital Markets)

Thanks Darcy. Maybe I'll just, just kind of a bit of a follow up there then. Is there like an M and A market here that's opening up potentially a little bit more where there could be some more deals or maybe just describe what the M and A market looks like now, assuming normalized pricing in that.

Lara

I'm going to pass it over to Lara. Lara, you want to provide some comments on M and A Europe? You bet. I mean we just recently announced our one deal of acquiring 1,000 boes a day in Germany. What we liked about that, is it adjacent or increasing our working interest in existing assets? We do see potential. I think Vermillion, I mean I'm new to Vermillion. Vermilion is not new to Germany and has developed strong relationships with the players there. We've got a super team in Germany and so I think you'll see us active in all deal flow as well as looking proactively. Germany we do view as core to us and so we'll continue to assess opportunities there. Thanks, Laura.

Jeremy McCrae (Equity Analyst at BMO Capital Markets)

Okay, thank you guys.

OPERATOR

Thanks, Jeremy. Your next question comes from Spencer Limming with CIBC World Markets. Please go ahead.

Spencer Limming (Equity Analyst at CIBC World Markets)

Hey, good morning guys. Thanks for taking my question. Just kind of touching more on the regulatory environment. Are you seeing discussions are looking good, right, in terms of government policy in terms of increasing production, but has anything materialized in terms of fast tracking permits or have you heard any conversations around maybe what that might look like if the countries are looking to increase production?

Dion Hatcher (President and CEO)

Well, thanks for the question. You know, I can summarize maybe what Darcy said and please don't Darcy, if you have other comments. I mean, I think there's a just like Canada in every jurisdiction there's an established timeline and steps to assess and acquire permits in all jurisdictions. And I think the way to think about it is, you know, we're seeing the resources assigned from the government's point of view to ensure that those timelines are met and those permits are awarded in a timely manner. So what that means is, you know, we brought two wells on last fall in the Netherlands. We're going to bring our fist, of course, well on mid this year, we're drilling another well here, kicking it off in the summer Netherlands. We got our two German wells planned early next year. Right. So it's a daisy chain of activity. And you know, what we do is we're planners, right. So we're working on permits now that we're going to drill in 27, 28, 29. So we just get ahead of it. And what we want in all jurisdictions is stable and predictable. And so we have no issues with the rules. We just want to make sure they're followed consistently with good timelines. And that's what we're seeing. And frankly that works well for us. Anything I missed there, Darcy?

Spencer Limming (Equity Analyst at CIBC World Markets)

Okay. Yeah, great. That's really good color. Oh. Oh, sorry. Darcy, did you want to go? No, sorry, I didn't have anything to add. Spencer. Thanks. Okay. Yeah, no, that's great. Just a follow up question. Pivoting over now to deep basin. So you guys have obviously shown over the years in terms of bringing costs down across the Montney, and I'm just kind of curious, in terms of applying those cost saving practices to the deep basin on the acquired lands, do you see similar ability to reduce costs across those lands over time? And what would kind of be the cadence or timeline of kind of achieving those better practices.

Dion Hatcher (President and CEO)

Oh, thanks, Spender, again. Oh, Spencer, I'll kick it off here and pass it to Ren McQuaid, but, you know, hopefully the read through. I made a comment here on the script that we're now starting to exceed the $200 million of synergies that we identified post the acquisition. And that is a combination of expense plus also capital. You know, I think we showed some things on their investor day around per. Well, costs coming down year over year. And with the three rigs we're running consistently in deep basin, we're seeing those wins. But maybe Randy, over to you to build on those comments.

Randy McQuaid

Yeah, yeah, it's a good, it's fair comment. Like, you know, I think the deep basin, it's, you know, with our three rig program, we've really been able to leverage our operational scale and our dominant position in that deep basin. So we have seen costs come down as they flow through. We'll kind of work through it in the next couple quarters here. But I would say we have definitely seen costs come down and continue to work on, you know, with this continuous improvement. We expect to see, you know, further efficiencies as we continue to get more active in the program. Thanks, Ray.

Dion Hatcher (President and CEO)

Thanks, guys. I'll turn it back. Spencer.

OPERATOR

There are no further questions at this time. I'd like to turn the call back over to Dion Hatcher for any closing remarks.

Dion Hatcher (President and CEO)

Well, thanks again for the call and with that, we'll close the line. Enjoy the rest of your day.

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