Mr. Dion Hatcher reports

VERMILION ENERGY INC. ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31, 2023 AND ACCELERATED RETURN OF CAPITAL

Vermilion Energy Inc. has released its operating and condensed financial results for the year ended Dec. 31, 2023.

The audited financial statements, management discussion and analysis, and annual information form for the year ended Dec. 31, 2023, will be available on SEDAR+, on EDGAR and on Vermilion's website.

Highlights

Q4 2023 results

• Q4 2023 fund flows from operations (FFO) was $372-million ($2.27/basic share) and exploration and development (E&D) capital expenditures were $143-million, resulting in free cash flow (FCF) of $229-million ($1.40/basic share).
• Net debt decreased by $164-million in Q4 2023 to $1.1-billion, the lowest level in a decade and a 50-per-cent reduction from the peak in 2020. In addition, Vermilion returned $45-million to shareholders comprising $16-million of dividends and $29-million of share buybacks.
• Production during the fourth quarter of 2023 averaged 87,597 boe/d (barrels of oil equivalent per day), comprising 54,216 boe/d from the company's North American assets and 33,381 boe/d from the company's international assets.
• Q4 2023 production benefited from a full quarter of production from Australia and Ireland following maintenance downtime in the prior quarter, as well as increased production in the Netherlands due to new production from the company's 2023 drilling program.

Year-end 2023 results

• Two thousand twenty-three FFO was $1,143-million ($6.98/basic share) and E&D capital expenditures were $590-million, resulting in FCF of $552-million ($3.37/basic share).
• Net debt decreased by $266-million in 2023 to $1.1-billion, representing a trailing net debt to FFO ratio of under 1.0 times. In addition, Vermilion returned $160-million to shareholders, comprising $65-million in dividends and $95-million of share buybacks.
• Reported a 2023 net loss of $238-million ($1.45/basic share) driven by non-cash impairment charges and dispositions, partially offset by strong price realization and acquisition activity. Excluding non-cash impairments, net earnings were $536-million ($3.27/basic share).
• Production during 2023 averaged 83,994 boe/d, which was at the mid-point of the company's 2023 guidance range. Strong performance across many of the company's business units served to offset wildfire-related downtime in Canada and maintenance downtime in Australia.
• Year-end 2023 proved developed producing (PDP) reserves were 173 mmboe (million barrels of oil equivalent) and total proved plus probable (2P) reserves were 430 mmboe, reflecting a reserve life index of 5.6 years and 14.0 years, respectively.
• The after-tax net present value of PDP reserves, discounted at 10 per cent, is $3.2-billion and the after-tax net present value of 2P reserves, discounted at 10 per cent, is $5.7-billion, or $28.72 per basic share after deducting year-end net debt.

Outlook

• In conjunction with the company's Q4 2023 release, the company announced a quarterly cash dividend of 12 cents per share, payable on April 15, 2024, to shareholders of record on March 28, 2024. This quarterly cash dividend represents a 20-per-cent increase over the prior quarterly dividend.
• Given the company's strong financial position and continued operational momentum, the company is increasing its capital return target to 50 per cent of excess FCF and will manage to this target on a full-year basis versus the company's previous effective date of April 1, 2024. Year to date, the company repurchased and retired 1.4 million shares and plan to increase the pace of share buybacks starting immediately.
• Construction of the 16,000 boe/d Mica Montney battery is progressing as planned and remains on schedule for a mid-year start-up. With the additional capacity provided by this battery, the company is able to move forward with the growth phase of its Mica Montney asset, and has drilled six wells on its 16-28 BC pad that will be completed and ready for tie-in during Q2 2024.
• The company continued to advance its deep gas exploration and development plans in Germany, with drilling operations nearly complete on the first well of our program. The company expects to reach total depth in the coming weeks and will then move the rig to the next location, where the second well of the company's program will be drilled during Q2 2024.
• In Croatia, the company drilled the first exploration well on the SA-7 block in Q1 2024 and reached total measured depth of 2,371 metres, where the company discovered hydrocarbons in multiple zones. The company plans to evaluate and test these zones during the second quarter while commencing drilling on the second of four wells planned on the SA-7 block this year. Construction of the gas plant on the SA-10 block is progressing as planned and remains on schedule for a mid-year start-up.

Message to shareholders

We made significant progress in 2023 toward our debt reduction and asset high-grading initiatives, while also advancing key growth projects in Canada, Germany and Croatia. We closed the Corrib acquisition in Ireland and completed the disposition of select non-core assets in southeast Saskatchewan early in the year. These transactions further strengthened our asset base by adding more low emission, premium-priced European natural gas to our portfolio while divesting less-efficient, higher-cost assets in Canada. With this high-graded asset base, we were able to deliver on the midpoint of our annual production guidance of 84,000 boe/d despite wildfire-related downtime in Western Canada and unplanned downtime in Australia. Our ability to meet annual production guidance highlights the advantages of operating a diversified portfolio as we were able to reallocate capital to offset the production impacts in Canada and Australia. With strong operational performance in the fourth quarter, we achieved average production of 87,597 boe/d in Q4 2023, representing a 6-per-cent increase over the prior quarter.

Vermilion generated $1.1-billion of fund flows from operations (FFO) in 2023, representing the second strongest year in the history of the company. After accounting for E&D capital expenditures, we generated $552-million of free cash flow (FCF), of which 29 per cent, or $160-million (98 cents per share), was returned directly to shareholders through an increased dividend and share buybacks, and an additional $266-million ($1.62/share) was returned indirectly through debt reduction. Q4 2023 FFO and FCF was $372-million and $229-million, respectively, representing a 38-per-cent and 59-per-cent increase over the prior quarter, primarily due to higher production from our high-margin Australia and Ireland business units and tax adjustments. Net debt decreased by $266-million in 2023 to end the year at $1.1-billion, which is the lowest level in a decade and represents 0.9 times our annual FFO. This is a key milestone for the company as it aligns with our internal leverage target of one times net debt to FFO or less, and positions us for increasing shareholder returns, including a 20-per-cent increase to our quarterly dividend effective Q1 2024, previously announced with our 2024 budget.

As a result of the progress achieved on debt reduction, we are now able to accelerate our return of capital. The return of capital framework outlined with our 2024 budget release in December contemplated a capital return target of 30 per cent of excess FCF (EFCF) in Q1 2024, increasing to 50 per cent of EFCF effective April 1, 2024. Given our strong financial position and continued operational momentum, we now plan to increase our capital return target to 50 per cent of EFCF on a full-year basis for 2024 with a corresponding increase in share buybacks starting immediately, as we continue to believe share buybacks represent a competitive use of capital.

Our disciplined focus on strengthening the balance sheet and high-grading the asset base, along with diligent capital allocation, has made the company much stronger and much more resilient today. We ended 2023 with a strong balance sheet and have continued our operational momentum from the fourth quarter into 2024. Our 2024 capital program is well under way and we are very pleased with how things are progressing on our three key growth initiatives in Canada, Germany and Croatia. The development of our gas prospects in Germany and Croatia will increase our exposure to premium-priced European gas, while the expansion of our Montney infrastructure in Canada will set the stage for long-term development and growth of this asset. We are excited about Vermilion's outlook and believe we have a robust portfolio capable of generating strong compounded returns for our shareholders through a combination of modest annual production growth, a resilient and growing base dividend, and share buybacks.

We would like to thank all our stakeholders for their ongoing support and contributions, and we look forward to providing further updates on our 2024 operational and financial results as the year progresses.

Q4 2023 operations review

North America

Production from our North American operations averaged 54,216 boe/d in Q4 2023, a decrease of 4 per cent from the previous quarter due to natural declines in both Canada and the United States.

In the Deep Basin, we drilled five (5.0 net), completed five (5.0 net) and brought on production four (4.0 net) Mannville liquids-rich conventional natural gas wells. At Mica we drilled the initial four (4.0 net) Montney liquids-rich shale gas wells on our B.C. lands as part of our winter drilling program in advance of the expected start-up of our 8-33 B.C. battery in mid-2024. In Saskatchewan, we completed and brought on production one (1.0 net) light and medium crude oil well, while in the United States, we participated in the drilling of six (2.0 net) non-operated light and medium crude oil wells in Wyoming.

Construction of the 16,000 boe/d Mica Montney battery is progressing as planned and remains on schedule for a mid-year start-up. Once operational, this battery will more than double our Montney infrastructure capacity to approximately 20,000 boe/d. With this additional capacity, we are able to move forward with the growth phase of our Mica Montney asset, and to date have drilled eight of the 11 planned wells on or offsetting our recent 16-28 B.C. pad. The two wells that were previously drilled on this pad and brought on production in March, 2023, have produced nearly 700,000 boe combined to the end of February, 2024, including over 215,000 barrels of liquids (83 per cent light crude oil). Six of the new wells are expected to be completed and ready for tie-in during Q2 2024 to align with the start-up of the new battery.

International

Production from our international operations averaged 33,381 boe/d in Q4 2023, an increase of 29 per cent over the previous quarter primarily due to a full quarter of production at our Australia and Ireland operations following maintenance downtime in the prior quarter, as well as increased production in the Netherlands due to new production from our 2023 drilling program.

We continued to advance our deep gas exploration and development plans in Germany, with drilling operations nearly complete on our first well of our program. We expect to reach total depth in the coming weeks and will then move the rig to the next location, where the second well of our program will be drilled during Q2 2024.

In Croatia, construction of the gas plant on the SA-10 block is progressing as planned and remains on schedule for start-up mid-year. This gas plant will facilitate production from the SA-10 block where we have previous gas discoveries. Subsequent to year-end, we commenced drilling on the first exploration well on the SA-7 block and reached total measured depth of 2,371 metres, where we discovered hydrocarbons in multiple zones. We plan to evaluate and test these zones during the second quarter while commencing drilling on the second of four wells planned on the SA-7 block this year. In addition, we recently signed a farmout agreement with the INA Group to jointly develop the SA-7 block. INA is the largest integrated oil and gas company in Croatia and brings local expertise and access to existing infrastructure that will play a critical role in developing this asset.

2023 reserves update

Our 2023 proved developed producing (PDP) reserves decreased by 8 per cent from the prior year to 172.7 mmboe while our total proved plus probable (2P) reserves decreased by 18 per cent from the prior year to 429.8 mmboe, primarily due to dispositions, production and technical revisions, including technical revisions resulting from capital allocation decisions. Early in the year, we divested a non-core asset in southeast Saskatchewan which accounted for 11.6 mmboe of the PDP reduction and 32.4 mmboe of the 2P reduction. During the second half of the year we divested non-core assets in the United States, contributing 0.7 mmboe to the PDP reduction and 13.9 mmboe of the 2P reduction. The closing of the Corrib acquisition in Ireland in Q1 2023 added 12.5 mmboe of premium priced European gas to our PDP reserves and 17.2 mmboe to our 2P reserves.

Over the past couple years, we have placed a great deal of focus on asset high grading and advancing several key growth projects within our portfolio to increase FCF per share. As a result, some of our near-term capital allocation priorities have shifted, with a greater emphasis on funding our Mica Montney development and Germany exploration program. With this in mind, we have updated future capital allocation estimates to align with our long-term capital priorities, including our return of capital framework. As a result, we have removed or divested reserves associated with undeveloped locations that are not prioritized for investment under our current plans. The assets most impacted by these capital allocation decisions are located in the U.S. and Saskatchewan. Approximately 40 per cent of the 2P technical revisions relate to capital allocation decisions and, therefore, some of these formerly assigned reserves could be recognized at a future date if they align with our capital allocation parameters at that time. In addition, we expect to recognize additional reserves over time from our Mica Montney and Germany exploration program as we develop these assets.

The PDP and 2P reserve life index at Dec. 31, 2023, is 5.6 years and 14.0 years, respectively, both of which are in line with our long-term average and appropriately reflect the conventional composition of our asset base. The after-tax net present value of PDP reserves, discounted at 10 per cent, is $3.2-billion and the after-tax net present value of 2P reserves, discounted at 10 per cent, is $5.7-billion, or $28.72 per basic share after deducting year-end net debt.

The attached table provides a summary of company interest reserves by reserve category and region on an oil equivalent basis. Please refer to Vermilion's 2023 annual information form for the year ending Dec. 31, 2023, for detailed information by country and product type.

The next attached table provides a reconciliation of changes in company interest reserves by reserve category and region. Please refer to Vermilion's 2023 annual information form for detailed information by country and product type and for an explanation concerning the reserve change categories. The attached tables may not total due to rounding.

Additional information about our 2023 McDaniel Reserves Report can be found in our 2023 annual information form on our website and on SEDAR+.

Outlook and guidance update

Our Q1 2024 capital program is progressing as planned with a primary focus on Montney drilling and battery construction, Germany exploration drilling and Croatia gas plant construction. Most of the production from the Q1 2024 activity will not be on stream until mid-year or later, and as a result we expect Q1 2024 production to be in the range of 83,000 to 85,000 boe/d.

Organizational update

Bryce Kremnica has stepped down as vice-president of North America. We would like to thank Mr. Kremnica for his many contributions to Vermilion over the past 18 years. Randy McQuaig has been promoted to vice-president, North America, and will become a member of Vermilion's executive committee. Mr. McQuaig has been with Vermilion since 2013 and most recently held the position of director of Canada Business Unit Assets, a position he has held since 2021. Mr. McQuaig has 30 years of operations and executive management experience, and has a bachelor of science degree in petroleum engineering from the University of Alberta.

Commodity hedging

Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of March 6, 2024, we have 33 per cent of our expected net-of-royalty production hedged for 2024. With respect to individual commodity products, we have hedged 46 per cent of our European natural gas production, 28 per cent of our crude oil production and 29 per cent of our North American natural gas volumes for 2024, respectively.

(signed "Dion Hatcher")

Dion Hatcher,

President and chief executive officer

Management's discussion and analysis and consolidated financial statements

To view Vermilion's management's discussion and analysis and consolidated financial statements for the year ended Dec. 31, 2023, and 2022, please refer to SEDAR+ or Vermilion's website.

About Vermilion Energy Inc.

Vermilion is an international energy producer that seeks to create value through the acquisition, exploration, development and optimization of producing assets in North America, Europe and Australia. The company's business model emphasizes free cash flow generation and returning capital to investors when economically warranted, augmented by value-adding acquisitions. Vermilion's operations are focused on the exploitation of light oil and liquids rich natural gas conventional and unconventional resource plays in North America, and the exploration and development of conventional natural gas and oil opportunities in Europe and Australia.

Vermilion's priorities are health and safety, the environment, and profitability, in that order. Nothing is more important to the company than the safety of the public and those who work with Vermilion and the protection of the company's natural surroundings. Vermilion has been recognized by leading ESG (environmental, social and governance) rating agencies for the company's transparency on and management of key environmental, social and governance issues. In addition, Vermilion emphasizes strategic community investment in each of its operating areas.

We seek Safe Harbor.