DBRS Comments on Vermilion Energy’s Acquisition in Germany

DBRS notes that on November 6, 2013, Vermilion Energy Inc. (Vermilion or the Company; rated BB (low)) announced that it will be acquiring GDF SUEZ E&P Deutschland GmbH’s (GDF SUEZ) 25% interest in four producing natural gas fields and a surrounding exploration license located in northwest Germany for a total cash cost of approximately $170 million (the Acquisition). Based on DBRS’s review of the Acquisition, the Acquisition is not expected to have a material impact on the Company’s overall risk profile. Although the Acquisition will be funded with debt and will likely result in a moderate increase in leverage (pro forma adjusted debt-to-capital of 40.5% versus 36.3% in Q2 2013), it is expected grow Vermilion’s production (estimated at approximately 7%) in a region with low political risk and key credit metrics are still expected to remain in line with the current rating category.

The assets are expected to have an average net production rate of approximately 18 million cubic feet per day net in 2013, with an estimated proved plus probable reserves of 10.1 million barrels of oil equivalent as of year-end 2013. In addition, the assets have an estimated decline rate of 16% annually and a reserve life index of approximately 9.2 years. The Acquisition also includes a surrounding exploration license that comprises 204,000 gross acres, of which 85% is in the exploration license, and a 0.4% equity interest in Ergas Munster GmbH (a joint venture for transporting, processing and marketing gas in northwest Germany) that will allow the Company’s proportionate share of produced volumes to be processed, blended and transported to consumers.

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

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.