DBRS Confirms Vermilion Energy at BB (low), Stable Trend

DBRS has today confirmed the Issuer Rating and Unsecured Notes ratings of Vermilion Energy Inc. (Vermilion or the Company) at BB (low) with a Stable trend. Pursuant to DBRS’s leveraged finance rating methodology, a recovery rating of RR3 with Stable trend has also been confirmed with respect to Vermilion’s Unsecured Notes. The rating confirmation is based primarily on the Company’s continued strong financial metrics. For 9M 2011, total debt-to-capital of 26.3% and debt-to-cash flow of 0.95 times (x) provide very strong support for the current rating category.

The current rating incorporates the Company’s future growth prospects. Vermilion has significant future production prospects through its interest in the Corrib operations (Ireland) and the Cardium tight oil development (western Canada). With $630 million budgeted for capital expenditures in 2012, the Company continues to press toward its production goals.

For the more immediate term, production will be increased through the recent acquisition of interests in six producing fields located in the Paris and Aquitaine basins in France for a total consideration of approximately $115 million. The acquisition further complements Vermilion’s asset base, production mix and growth strategy. For further details, please see the DBRS press release dated December 19, 2011. This transaction comes after an equity issuance on November 28, 2011, for gross proceeds of $263 million, demonstrating the Company’s continued commitment to fund its activities in a prudent manner and maintain adequate financial flexibility for the rating. The Company’s credit profile and key credit ratios continue to remain in line with the current rating on a pro forma basis, assuming debt financing, along with the equity issuance (total debt-to-capital of 27% and total debt-to-cash flows of 1.17x).

The rating is, however, limited by the relatively small scale of Vermilion’s operations. Although operations are situated in relatively safe international markets, any significant disruption or economic downturn could have detrimental consequences on the results of the consolidated entity.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Oil and Gas Companies and DBRS Criteria: Rating Leveraged Finance, which can be found on our website under Methodologies.