Vermilion Energy suspends share buybacks amid EU windfall tax


Retroactive tax could cost Calgary company between $650 million and $750 million over two years

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Vermilion Energy Inc. has announced that it will suspend its share buyback program as the international oil and gas producer faces the impact of a new one-off tax targeting the hydrocarbon sector by the European Union.

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The retroactive tax could cost the Calgary-based company between $650 million and $750 million over two years, depending on the strip’s current price, chief executive Dion Hatcher said Thursday in a call with investors.

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“It was an interesting time with politics in Europe, during this energy crisis,” Hatcher said. “I think it is important to note that the current situation is not only the result of the war. Really, (these are) the policies that ultimately led to lower supply and higher demand that created a pretty tight market.

“We have risked significant capital to deliver secure energy in Europe and over this period we have worked hard on operations to ensure we are best in class.”

In a bid to stem the spike in energy prices following the Russian invasion of Ukraine, EU governments agreed last month to a temporary levy on the profits of oil and gas companies and a cap on the profits of certain power generation companies. Under the new regulation, EU member states are required to levy a minimum tax of 33% on the 2022 and 2023 excess profits of qualifying companies.

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Vermilion said more details on the tax’s potential impact will emerge once member states implement their respective levies by the end of the year. In the meantime, the company has announced that it will suspend its share buyback program during the fourth quarter while it assesses the impact of the new tax.

The decision to halt buybacks was not well received by investors and the company’s share price had fallen about 10% by midday Thursday.

Vermilion, which has significant operations in countries such as France, the Netherlands, Germany and Ireland, as well as Western Canada, has also benefited significantly from its exposure to soaring gas prices. natural in Europe.

The company posted a profit of $271 million for the three-month period ending September 30, as gas prices in Europe nearly doubled from the previous quarter, helping Vermilion record flows of record quarterly funds from operations of $508 million.

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The company said that while European gas represents only 24% of its total production, it will represent 45% of Vermilion’s cash flow from operations in 2022.

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“The tragic events in Ukraine are undoubtedly contributing to higher prices, however, the underlying fundamental drivers of high gas prices in Europe were in place before the invasion,” Hatcher said, adding that Europe consumes about 45 to 50 (billion cubic feet). per day of natural gas, of which around 40% will be supplied by Russia in 2021 – volumes that the EU is determinedly striving to replace.

“I think the structural drivers will support gas prices in Europe for many years to come.”

The company also said it will delay releasing its 2023 budget as it continues to assess the impact of the one-off tax.

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