Vermilion Energy Announces Acquisition In Germany
Vermilion Energy Inc has announced that it has entered into a definitive purchase and sale agreement with GDF SUEZ E&P Deutschland GmbH ("GDF SUEZ") whereby Vermilion, through its wholly-owned subsidiary, will acquire GDF SUEZ's 25% interest in four producing natural gas fields and a surrounding exploration license located in northwest Germany(the "Acquisition"). GDF SUEZ is an affiliate of GDF SUEZ S.A., a publicly traded, French multinational utility. The Acquisition, which remains subject to customary conditions and receipt of all necessary GDF partner approvals, has an effective date of January 1, 2013 with closing targeted for December 31, 2013. Our estimate of our cash cost at closing of the Acquisition is approximately $170 million, subject to final closing adjustments and changes in foreign exchange rates. The Acquisition will be funded with existing credit facilities.
The Acquisition entails the purchase of GDF SUEZ's 25% contractual participation interest in a four-partner consortium formed in 1956 between ExxonMobil Corporation ("ExxonMobil"), Wintershall Holding GmbH ("Wintershall"), BEB Erdgas und Erdöl GmbH ("BEB", a joint venture between ExxonMobil and Deutsche Shell AG.), and GDF SUEZ (the "E&P Consortium Interest"). ExxonMobil is the operator of the assets held by the consortium. The purchase of GDF SUEZ's non-working E&P Consortium Interest will enable Vermilion to participate in the exploration, development and production of the assets.
In addition to the E&P Consortium Interest, Vermilion will also receive a 0.4% equity interest in Ergas Munster GmbH ("EGM"), a joint venture created in 1959 to jointly transport, process, and market gas in northwest Germany (the "Transportation Interest"). EGM partners include ExxonMobil, Wintershall, BEB, RWE Dea AG., and GDF SUEZ. The Transportation Interest will allow for our proportionate share of produced volumes to be processed, blended, and transported to designated gas consumers through the EGM network of approximately 2,000 kilometres of pipeline. Realized pricing for production from the assets is expected to be derived from the Netherlands based Title Transfer Facility Index price, less certain gas quality adjustments and marketing fees.
The assets subject to the E&P Consortium Interest include four gas producing fields which span eleven production licenses. The assets are expected to produce at an average rate of approximately 18 million cubic feet per day ("mmcf/d") net in 2013 and have estimated proved plus probable reserves of 10.1 million boe(1) net as of year-end 2013, as evaluated by GLJ Petroleum Consultants Ltd. The active wells produce from the Permian Zechstein Stassfurt carbonate and the Triassic Middle Bunter sandstone. The acquired assets have a relatively low effective decline rate estimated at approximately 16% annually and a reserve life index of approximately 9.2 years. In addition to the production licenses, the surrounding exploration license is also included in the E&P Consortium Interest. The exploration and production licenses comprise 204,000 gross acres, of which 85% is in the exploration license.
Based on estimated 2013 average daily production of 18 mmcf/d and a cash cost of $170 million, the acquisition metrics reflect a flowing production metric of approximately $57,000/boe per day and approximately $18.70/boe of estimated year-end 2013 proved plus probable reserves, including future development capital. Based on expected after-tax cash flow of approximately $27 million, net to Vermilion, for 2014 (using current natural gas prices), the cost of the Acquisition is approximately 6.3 times estimated 2014 after-tax cash flow. Upon closing of the Acquisition, we will continue to maintain considerable financial flexibility, with approximately $250 million of available borrowing capacity under our credit facility and a net debt-to-fund flows from operations ratio of approximately 1.3 times, after giving effect to the Acquisition.
The Acquisition represents our entry into the German exploration and production ("E&P") business, a producing region with a long history of oil and gas development activity, low political risk and strong marketing fundamentals. Germany's E&P industry currently produces an estimated 165 thousand barrels per day of oil and liquids(2) and 1.1 billion cubic feet per day of dry natural gas(2) and is characterized by a limited number of well-financed intermediate-sized producers. The Acquisition represents a key entry into this sizable market, in the form of free cash flow(3)generating, low-decline assets with near-term development inventory in addition to longer-term low-permeability gas prospectivity.
The Acquisition is well aligned with our European focus, and will increase our exposure to the strong fundamentals and pricing of the European natural gas market. The producing assets are located 300 kilometres to the east of ourNetherlands assets and share similar subsurface characteristics. We believe that our experience with conventional and unconventional oil and gas development, coupled with new access to proprietary technical data, positions us for future development and expansion opportunities in both Germany and the greater European region.