Vermilion Energy

Internationally diversified | Free cash flow focused

Disclaimer

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All content on this website and publications, as well as all communications from the author, are for educational and entertainment purposes only and under no circumstances, express or implied, should be considered financial, legal, or any other type of advice. Each individual should carry out their own analysis and make their own investment decisions.

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Introduction and business model

Vermilion Energy is an international oil and gas producer based in Calgary, Alberta, focused on the acquisition, exploration, development, and optimization of assets in North America, Europe, and Australia. Operational management is organized from the Calgary headquarters, but it has local business units in each region. As we can see in the following chart, its assets are located in both North America (United States and Canada), as well as in Europe and Australia.

Their portfolio combines low-decline conventional assets—providing a stable cash flow base—with long-term growth assets in key areas such as the Deep Basin, the Canadian Montney, and Germany, consolidating a diversified production profile that adapts well to a volatile price environment like the current one, thanks to exposure to oil, European natural gas, and North American natural gas. In fact, recently (late last year), they completed the acquisition of Westbrick Energy, positioning them as a natural gas producer rather than an oil producer, completely shifting the focus and profile of the company.

Europe is, in terms of prices and margins, the crown jewel of $VET.TO, and the reason many of us became interested in the company. The natural gas market in the old continent, especially since the loss of Russian supply, is one of the most lucrative in the world: Europe is entirely dependent on imports to meet its domestic demand (although this has reduced significantly due to the decline of its industrial base), and it must compete with Asia for LNG shipments, which makes the prices of this commodity 4x higher than in the United States (and 7x higher than in Canada).

Until now, Canadian natural gas (AECO) has been a very unappealing investment, as the supply is huge but cannot be exported, causing prices to be very low, as we can see in the following chart. However, this could change soon:

• The demand for natural gas is expected to grow significantly across the American continent and globally, as it is a much more efficient and cleaner energy than coal (which it will replace for many uses), and the rise of AI and data centers are a huge demand sink.

• So far, the North American market (both the U.S. and Canada) has been captive, but a large LNG export capacity is under construction and should be operational in the coming years, reducing the current difference and arbitrage between markets.

  

With these tailwinds for its product, could it now be an interesting investment idea?

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Investment idea

To answer the question of whether Vermilion Energy could be a good investment opportunity, we will analyze the following sections:

• Assets

• Operations and financials

• Balance sheet

• Shareholder return

Let’s get started.

Assets