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Vero Announces Third Quarter 2012 Financial Results
Published : November 12, 2012
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Vero Announces Third Quarter 2012 Financial Results

CALGARY, Nov. 12, 2012 /CNW/ - Vero Energy Inc. ("Vero" or the "Company") (TSX: VRO) today announces its third quarter 2012 financial results. Copies of the financial statements and management discussion and analysis in respect thereof for the quarter ended September 30, 2012 will be available, in due course, through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.

Third Quarter 2012 Highlights

  • Generated net earnings of $1.5 million ($0.03 per share basic and diluted) in the quarter.
  • Completed the second full quarter under the transformed oil entity. Achieved a quarterly average of over 2,364 boe/d (65% weighting to liquids production) which represents a 44% increase in production from the retained assets over the comparative quarter in 2011.
  • Averaged realized prices of $55.95 per boe contributed to a $43.68 per boe operating netback.
  • Achieved funds flow from operations of $8.2 million, equating to $0.17 per share (basic and diluted).
  • Spent $20.5 million drilling 8(5.7 net) and completing 6 (5.9 net) Cardium horizontal wells in the quarter with a 100% success rate.

Fourth Quarter 2012 Update

  • Completed 2(1.1 net) horizontal wells and placed on production.
  • Drilled 4(1.6 net) horizontal wells with 4(1.5net) horizontal wells waiting on completion.

RETAINED OIL ASSET SUMMARY DATA

Due to the significance and timing of the disposition that occurred on January 31, 2012 the financial data presented in the third quarter financial results will not necessarily be comparable to the operating and financial results realized in 2011. To give readers a better comparison reference point for what Vero looks like on a go forward basis in 2012 and beyond, we are presenting the below operating data that isolates the production and related financial data for just the assets that relate to the operations after the sale (the "retained assets") along with comparative 2011 data for the same asset base.

      Three months ended Nine months ended
      September 30, September 30,
Daily Production 2012 2011 % 2012 2011 %
Oil (bbl/d) 1,363 938 45 1,381 891 55
Gas (mcf/d) 4,949 3,476 42 4,488 2,972 51
NGL (bbl/d) 176 125 41 162 98 65
BOE/D 2,364 1,642 44 2,291 1,485 54

  Three months ended Nine months ended
      September 30, September 30,
Revenue Contribution ($000's) 2012 2011 % 2012 2011 %
Oil 10,242 7,569 35 31,144 21,913 42
Gas 1,144 1,244 (8) 2,736 3,273 (16)
NGL 780 750 4 2,444 1,872 31
Total 12,166 9,563 27 36,324 27,058 34

THIRD QUARTER OF 2012 IN REVIEW (all dollar amounts are in 000's except per share, boe, and per boe amounts unless specifically otherwise noted)

The third quarter of 2012 was the second full quarter of the newly reorganized Vero as a pure play light oil producer. During the third quarter Vero averaged 2,364 boe/d with a 65% liquids (oil and natural gas liquids) weighting. Compared to the third quarter of 2011, the Company delivered a 44% increase in average production in respect of the retained assets.  Operations were delayed in the second quarter and early in July with wet spring conditions but the Company did successfully complete its third quarter drilling plans prior to the end of September.

Capital exploration and development spending for the quarter was relatively active with 8 (5.7 net) Cardium horizontal wells drilled with a 100% success rate. Vero's total exploration and development capital spending in the third quarter was $20,538.  Vero generated $8,245 in funds flow for the third quarter or $0.17 per share (basic and diluted).  Earnings of $1,468 were generated in the third quarter of 2012, $0.03 per share (basic and diluted).  Commodity prices remained relatively flat, resulting in a 1% decrease in Vero's average realized commodity prices in the third quarter as compared to the second quarter of 2012.  Total net debt at the end of the third quarter stood at $35,269 representing 1.1 times cash flow on an annualized basis. As at September 30, 2012 there was $22,401 drawn on our $65 million bank line.

Vero would like to thank its shareholders for the support over the past seven years. Vero has had a track record of continuous growth in reserves and production, both on a whole and a per share basis, realized predominantly through the drill bit since its inception in 2005. This performance occurred over a time of extremely volatile commodity prices, significant changes in government regulation and legislature, and unprecedented uncertainty in world economies. Through this time the team still grew the Company from 630 boed in 2005 to over 10,000 boed in 2011.  In early 2012 Vero made a strategic decision to sell all of its high decline deep basin gas assets and maintain a light oil platform with a significant inventory of drillable locations. With the pending transaction with TORC Oil & Gas ("TORC"), as described below, the success of this strategy and our team's efforts has culminated in a successful outcome for our shareholders. We are proud of the high quality assets that our team of employees has put together and is contributing to the TORC transaction. The combined assets should result in an exciting and significant resource base of development and high impact light oil opportunities and ownership in a large, financially strong, light oil focused entity with a substantial platform for growth.

TORC Transaction

On September 13, 2012, Vero and TORC announced that they had entered into an agreement (the "Arrangement Agreement") providing for the combination of Vero and TORC (the "Transaction") to create a new light oil focused company. TORC, currently a private oil and gas company with focused operations in the Cardium light oil resource trend and in the southern Alberta Bakken petroleum system will be combined with Vero's focused Cardium light oil assets. Concurrent with the Transaction, TORC entered into a $120 million "bought deal" private placement financing with a syndicate of underwriters.  The financing was fully subscribed.

Separate Vero and TORC shareholder meetings will be held at 9:00am MST on November 16, 2012 to consider the transaction as more particularly set forth in the joint information circular that all shareholders should now have received.  It is expected that the Transaction will close on November 19, 2012.

FINANCIAL STATEMENTS

Below is selected financial statement information for the three and nine months ended September 30, 2012 along with comparative data for 2011.  For full disclosure of our unaudited financial statements with notes and the Management's Discussion and Analysis, please visit our website or SEDAR.

 
VERO ENERGY INC.
Statement of Financial Position
(in thousands of Canadian dollars) (unaudited)
                                                                                   September 30,
2012
December 31,
2011
ASSETS      
CURRENT      
  Accounts receivable   16,670 14,729
  Prepaid expenses and deposits   3,116 1,035
  Derivative contracts   1,778 -
  Assets held for sale   - 216,897
    21,564 232,661
       
Property, plant and equipment   180,105 131,882
Exploration and evaluation assets   11,503 14,492
Derivative contracts   374 5
Goodwill   5,633 5,633
    219,179 384,673
       
LIABILITIES      
CURRENT      
  Accounts payable and accrued liabilities   32,654 35,762
  Derivative contracts   - 539
  Bank debt   22,401 158,715
  Liabilities associated with assets held for sale   - 18,660
    55,055 213,676
       
Decommissioning liabilities   3,728 2,100
Deferred taxes   8,401 6,086
    67,184 221,862
       
SHAREHOLDERS' EQUITY      
  Share capital   129,628 216,678
  Contributed surplus   16,773 14,672
  Retained earnings (deficit)   5,594 (68,539)
    151,995 162,811
    219,179 384,673

VERO ENERGY INC.
Statement of  Comprehensive Income
For the three and nine month periods ended September 30, 2012 and 2011
(in thousands of Canadian dollars, except per share data) (unaudited)
         
  Three months ended
September 30,
Nine months ended
September 30,
  2012 2011 2012 2011
REVENUE        
  Petroleum and natural gas sales 12,166 31,365 42,172 97,097
  Royalties (1,083) (4,646) (4,203) (11,217)
  11,083 26,719 37,969 85,880
         
EXPENSES        
  Operating 1,176 7,308 6,589 20,971
  Transportation 410 1,153 1,707 3,631
  Losses (gains) on derivative contracts 463 (2,902) (2,602) (2,879)
  General and administrative 1,340 1,581 4,897 4,548
  Share based compensation 394 538 1,804 1,867
  Loss on disposal of assets 189 1,436 1,805 1,436
  Exploration and evaluation - 2,324 2,989 5,357
  Restructuring costs (103) - 1,873 -
  Depletion and depreciation 4,850 12,105 13,684 37,169
  Finance income (1) (17) (62) (35)
  Finance expenses 261 1,807 1,190 5,223
  8,979 25,333 33,874 77,288
         
NET EARNINGS BEFORE TAXES 2,104 1,386 4,095 8,592
         
INCOME TAXES        
  Deferred tax expense 636 527 2,314 4,295
         
         
NET EARNINGS AND COMPREHENSIVE INCOME 1,468 859        1,781 4,297
         
NET  EARNINGS PER SHARE        
  Basic 0.03 0.02 0.04 0.09
  Diluted 0.03 0.02 0.04 0.09

VERO ENERGY INC.
Statement of Cash Flows
For the three and nine months ended September 30, 2012 and 2011
(in thousands of dollars) (unaudited)
         
  Three months ended
September 30,
Nine months ended
September 30,
  2012 2011 2012 2011
CASH FLOWS RELATED TO THE        
  FOLLOWING ACTIVITIES:        
         
OPERATING        
  Net earnings 1,468 859 1,781 4,297
  Adjustments for:        
    Unrealized gain on derivative contracts 647 (2,970) (2,686) (3,721)
    Share based compensation 434 687 1,835 1,825
    Depletion and depreciation 4,850 12,105 13,684 37,169
    Accretion of decommissioning liabilities 21 117 54 318
    Exploration and evaluation expense - 2,324 2,989 5,357
    Loss on disposal of assets 189 1,436 1,805 1,436
    Deferred tax expense 636 527 2,314 4,295
         8,245 15,085 21,776 50,976
  Decommissioning costs incurred 21 (1) (191) (7)
  Changes in non-cash working capital (5,307) 622 (6,353) 5,992
  2,959 15,706 15,232 56,961
         
FINANCING        
  Change in bank debt 10,790 5,111 (136,314) 43,755
  Distribution of capital - - (14,698) -
  Proceeds from stock option exercises - 20 - 348
  10,790 5,131 (151,012) 44,103
         
INVESTING        
  Additions to petroleum and natural gas properties (20,508) (32,043) (53,372) (98,638)
  Additions to exploration and evaluation assets (16) (109) (247) (1,053)
  Purchase of petroleum and natural gas assets (14) - (6,912) (40)
  Additions to administrative assets - (39) - (45)
  Proceeds on sale of petroleum properties (189) 4,951 195,575 4,951
  Changes in non-cash working capital 6,978 6,403 736 (6,239)
  (13,749) (20,837) 135,780 (101,064)
         
NET DECREASE IN CASH AND CASH EQUIVALENTS - - - -
         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - - -
         
CASH AND CASH EQUIVALENTS, END OF PERIOD - - - -

Vero Energy Inc. is a Calgary based oil exploration and development company. Vero's common shares trade on The Toronto Stock Exchange under the symbol "VRO".

This press release shall not constitute an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction.  The common shares of Vero will not be and have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States, or to a U.S. person, absent registration or applicable exemption therefrom.

READER ADVISORY

Forward Looking Statements:  Certain information regarding the Company in this news release including management's assessment of future plans and operations, completion of the business combination transaction with TORC and the timing thereof, production estimates, initial production rates, drilling inventory and wells to be drilled, timing of drilling and tie-in of wells, productive capacity and product mix of new and existing wells, ability to execute on our 2012 capital expenditure plans and the timing thereof, future oil and natural gas prices, future liquidity and financial capacity, future results from operations and operating metrics, and prospectivity of our Cardium inventory may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, incorrect assessment of land values, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources.  Forward looking statements or information is based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect.  As a consequence, the Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or, if any of them do so, what benefits the Company will derive therefrom. In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the Company's ability to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the Company's ability to successfully market its oil and natural gas products. 

Readers are cautioned that the foregoing list of factors is not exhaustive.  Additional information on these and other factors that could effect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com, and the Company's website www.veroenergy.ca). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOE Disclosure:  Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation.  A BOE conversion ratio of 6 Mcf: 1 BBL is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing a 6:1 conversion basis may be misleading as an indication of value

Non-GAAP terms: This press release contains the terms "funds flow from operations" and "netbacks" which are not terms recognized under IFRS Generally Accepted Accounting Principles ("GAAP"). The Company uses these measures to help evaluate its performance as well as to evaluate acquisitions. The Company considers funds flow from operations a key measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Funds generated from operations should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with International Financial Reporting Standards as an indicator of Vero's performance. Vero's determination of funds flow from operations may not be comparable to that reported by other companies. The reconciliation between net income or loss and cash flow from operations can be found in the statement of cash flows in the financial statements. Vero also presents funds generated from operations per share whereby per share amounts are calculated using weighted average shares (basic and diluted) outstanding consistent with the calculation of net earnings (loss) per share, which per share amounts are calculated under GAAP. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues (excluding derivative gains and losses) and subtracting royalties, operating expenses and transportations costs on a per boe basis. Funds flow netbacks are calculated by taking the operating netback, adding finance income and then subtracting interest costs, and general and administrative costs on a per boe basis.

Funds flow from operations is calculated as cash provided by operating activities from the statement of cash flows, adding the change in non-cash working capital and decommissioning expenditures. Funds flow from operations is used to analyze the Company's operating performance and leverage. Funds flow from operations does not have a standardized measure prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other companies.

Net debt represents current assets less current liabilities and bank debt (but excludes the potential future liability related to the mark-to-market measurement of hedges). It does not have a standardized meaning prescribed by IFRS and it is therefore unlikely to be comparable to similar measures presented by other companies.

All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.

Operating netback equals production revenue less royalties, transportation and operating costs calculated on a per boe basis. Funds flow netback uses the operating netback, adds interest and other income and then subtracts interest and general and administrative costs. Operating netback and funds flow from operations netbacks are not standardized measures prescribed by IFRS and therefore may not be comparable with the calculations of similar measures for other companies.

SOURCE: Vero Energy Inc.

For further information:

Doug Bartole, President  & CEO, at (403) 218-2063
Scott Koyich, Investor Relations, (403) 215-5979
Internet:  www.veroenergy.ca

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Vero Energy Inc.

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TORONTO (VRO.TO)OTHER OTC (VREYF)
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