Vermilion Energy (NYSE:VET) reported second-quarter production above the top end of its guidance range, increased its full-year output outlook without raising its capital budget, and expanded its shareholder-return target as debt reduction continued.
President and CEO Dion Hatcher said second-quarter production averaged 125,800 barrels of oil equivalent per day (BOE/d). The company raised its 2026 production guidance to 121,000 to 123,000 BOE/d while maintaining exploration and development capital expenditure guidance of C$600 million to C$630 million.
Free Cash Flow and Debt Reduction
Chief Financial Officer Lars Glemser said Vermilion generated C$231 million in fund flows from operations during the quarter and spent C$110 million on exploration and development capital, resulting in more than C$120 million of free cash flow. Hatcher later cited quarterly free cash flow of C$122 million.
Net debt declined by about C$70 million during the quarter to C$1.22 billion. As of June 30, net debt was 1.3 times trailing four-quarter fund flows from operations, according to Glemser. The company has reduced debt by approximately C$840 million over the past five quarters.
Glemser said the lower debt balance reduced financing costs, with unit interest expense declining about 35% from the prior year. Vermilion expects full-year interest expense to fall by C$30 million from 2025.
Following the balance-sheet progress and improved confidence in future cash flow, Vermilion increased its target for shareholder returns to 40% to 60% of excess free cash flow, from a prior target of 40%.
- Vermilion returned approximately C$26 million to shareholders in the second quarter.
- That total included C$21 million of dividends and C$5 million of share repurchases.
- The company renewed its normal course issuer bid through July 2027 and said it expects the pace of buybacks to increase under the revised framework.
Glemser said the company intends to retain flexibility within the 40% to 60% range, considering market volatility and longer-term capital-allocation priorities.
Canadian Operations Lead Production Outperformance
Canadian production averaged 99,605 BOE/d in the quarter, including record production at the Mica Montney development. Quarterly Mica production reached 18,000 BOE/d, supported by a six-well pad at 8035.
Hatcher said the pad delivered an IP90 rate of more than 950 BOE/d per well, including 3 million cubic feet per day of natural gas and 470 barrels per day of oil and natural gas liquids. Drilling and completion costs were reduced to C$8.2 million per well.
The company said the Deep Basin program was moderated through spring breakup but continued to outperform budget expectations. Vermilion has been directing activity toward liquids-rich opportunities in the Rock Creek, Niton and Ellerslie areas while managing exposure to AECO natural gas prices.
Third-quarter production is expected to average 116,000 to 118,000 BOE/d because of planned maintenance in Ireland, Germany and Canada. Vermilion expects fourth-quarter production of approximately 122,000 BOE/d, with European gas production returning to levels in line with the first half.
Germany Expansion and European Gas Plans
After the quarter ended, Vermilion brought the Wisselshorst well in Germany into production. Hatcher described it as the first production from the company’s largest European discovery to date.
The company plans to debottleneck the well with a new sales pipeline and drill two additional wells on the license in 2027. Darcy Kerwin, vice president of international and HSE, said the two wells will be drilled from a common pad located about 1 to 2 kilometers from the original discovery well.
Vermilion is permitting and acquiring land for a new sales pipeline that is expected to enter service toward the end of 2027. Hatcher said the 12-inch pipeline is intended to allow Wisselshorst to reach a design rate of 16 million to 17 million cubic feet per day, while additional infrastructure could potentially raise area capacity to 34 million cubic feet per day.
The company also closed a previously announced German bolt-on acquisition after quarter-end. The acquisition adds approximately 1,000 BOE/d of production, weighted 85% to natural gas, and includes key infrastructure around the Osterheide well.
Hatcher said Osterheide has generated cumulative free cash flow of C$43 million since startup. Vermilion expects its German deep-gas program to help lift German output to 10,000 BOE/d by 2030.
Management also pointed to European gas prices above C$25 per MMBtu through winter 2026 and said regional storage levels were below average for the time of year. Vermilion plans to pursue additional domestic gas production through infrastructure debottlenecking and exploration development in Germany and the Netherlands.
Australia and Longer-Term Capital Plans
In Australia, production at Wandoo resumed safely after repair work during the quarter. Vermilion expects its next export in the third quarter and said it anticipates more regular exports afterward.
Looking toward 2027, Glemser said the company continues to evaluate drilling in Australia and is leaning toward proceeding given current oil prices. If undertaken, that activity could move 2027 capital spending into the C$700 million range, he said. Management expects capital spending to return to the C$600 million to C$630 million range later in its five-year plan as infrastructure spending declines and production growth continues.
About Vermilion Energy (NYSE:VET)
Vermilion Energy Inc is a Canadian-based international oil and gas producer headquartered in Calgary, Alberta. Established in 1994, the company focuses on the exploration, development and production of crude oil and natural gas reserves through its wholly owned and joint venture assets. Vermilion’s upstream operations target a balance of oil and gas projects across various regions, with an emphasis on high-quality resource plays that can deliver stable cash flow and long-term reserves replacement.
Vermilion’s product portfolio includes light and medium crude oil, heavy oil, natural gas and natural gas liquids (NGLs).
