Vermilion Energy (VET, Financial) recently announced its results for the third quarter, which were impressive. The company witnessed strong year-over-year growth on the back of operational execution. However, lower commodity pricing might be a concern. Let's see how Vermilion might perform going forward.
The way ahead
Moving ahead, it is pleased with the Germany acquisition made in the past and is counting on this expecting it to benefit the company by strengthening its long-term prospects. With this Vermilion is expected to generate free cash flows with low decline assets with near-term opportunity. Vermilion is further confident as its conventional and unconventional in combination with new access to proprietary technical data will position it for more development in future and better expansion opportunities in the space.
Vermilion is pleased with the drilling activities in Canada. It is well in line with its plans of conventional drilling in each of its Cardium light oil and Mannville condensate rich gas resource plays. With such an effort, Vermilion is confident of achieving incremental improvements in its production efficiencies also leading to a significant reduction in per section costs through the use of its utilization of long reach horizontal wells.
Projects in focus
It has great expectations from its Corrib project. After the completion tunnel boring operations, it is pleased to see good progress under this project, fairly in line with the company’s strategy. Recently the project operator has also completed the offshore work and other pipeline operations. The wells are well positioned and in shape to be fully operational and the company thinks it will prove as a good growth driver for it once it comes into is full pace.
Vermilion is continually extending its footprint in the unconventional Duverney condensate-rich gas resource play. The company has already amassed 317 net sections at very low costs. In addition, the company has also drilled in three stratigraphic test wells. These are expected to enhance its production and with it Vermilion will be in a strong position to fulfil the growing demands. Vermilion is focused on being a leading company in the league within the industry.
In Australia, Vermilion is laser focusing on the upcoming drilling program in 2015. But until its drilling program gets fully functional, Vermilion is engaged in maintaining long-term Wandoo field production rate. It is working closely to maintain it with the guidance that it has for it. If Vermilion succeeds to maintain these production levels, it is expecting many drilling programs in every two years, strengthening Vermilion’s opportunity in Australia.
Conclusion
Now moving to the valuation, with trailing P/E of 17.69 Vermilion looks reasonable while the forward P/E of 16.11 shows steady earnings growth in near term. But in the next five years the company’s earnings are growing at a CAGR of 13.10% which is lower than the industry average of 16.30%. This shows that the company is disappointing when it comes to being a long term holding. But as of now the stock has got much steam in is expected to give meaningful returns to the investors. Vermilion is definitely worth your dollars as of now.
