DBRS Comments on Vermilion Energy’s Acquisition

DBRS today notes that Vermilion Energy Inc. (Vermilion or the Company; rated BB (low) with a Stable trend) has announced its acquisition of Southeast Saskatchewan Assets (the Acquisition) for $400 million (including approximately $55 million of assumed debt). DBRS views the Acquisition as modestly positive with respect to Vermilion’s business risk profile. The acquisition is forecasted to add approximately 3,750 barrels of oil equivalent per day (boe/d) to Vermilion’s production profile (approximately 9% of 2013 production levels of 41,005 boe/d), consisting primarily of light crude oil with high netbacks. In addition, the Acquisition will add an additional core region to the Company’s portfolio, further providing the Company with greater geographic diversification. The acquisition is consistent with Vermilion’s strategy of growing production to nearly 50,000 boe/d over the near-term.

The Company is expected to finance the Acquisition with a mix of debt ($172.5 million) and equity ($172.5 million). Pro forma the Acquisition, Vermilion’s key credit metrics are expected to weaken modestly but remain solid for its current rating category. Vermilion’s ability to continue to grow production while maintaining a conservative balance sheet could result in a positive rating action.

The Acquisition is expected to close on April 29, 2014.

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.