Vero Announces First Quarter 2012 Financial Results and Completes Transformation to Oil

CALGARY, May 14, 2012 /CNW/ - Vero Energy Inc. ("Vero" or the "Company") (TSX-VRO) today announces its first quarter 2012 financial results. Copies of the complete financial statements and management's discussion and analysis in respect thereof for the three months ended March 31, 2012 will be available, in due course, through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.

As previously announced, the Company closed the sale of its natural gas assets on January 31, 2012. Due to the significance and timing of this disposition, the financial data presented in the financial statements and MD&A for the first quarter of 2012 will not properly reflect the operating and financial results of the remaining assets of Vero. To give readers a better comparison and reference point for what Vero's operating data looked like for just the assets that were retained after the sale, the following data isolates the comparative production and related financial data for only the assets that were retained after the sale.

RETAINED OIL ASSET SUMMARY DATA

											Three months ended March 31,
											2012			2011			% Change
PRODUCTION
Daily Production
Oil (bbl/d)											1,340			875			53
Gas (mcf/d)											4,072			2,725			49
NGL (bbl/d)											148			83			78
BOE/D											2,167			1,412			53
Percent Contribution
Oil											62%			62%			-
Gas											31%			32%			(3)
NGL											7%			6%			15
Total											100%			100%
REVENUES
Amount
Oil											10,587			6,672			59
Gas											720			1,004			(28)
NGL											767			525			46
Total											12,074			8,202			47
Percent contribution
Oil											88%			81%			9
Gas											6%			12%			51
NGL											6%			6%			-
Total											100%			100%

				Three months ended March 31,
				2012					2011			% Change
OPERATING NETBACK ($/BOE)
Revenues				61.23					64.54			(5)
Royalties				(6.96)					(6.77)			3
Operating expenses				(7.90)					(7.07)			12
Transportation				(2.26)					(1.97)			15
Operating netback				44.11					48.73			(9)

HIGHLIGHTS OF THE RETAINED OIL ASSETS FOR THE FIRST QUARTER OF 2012

• Drilled 8 (6.9 net) Cardium horizontal light oil wells in the first quarter of 2012 with 100% success. 3.9 net of these wells were new pool discoveries.
• Grew crude oil and total production by 53% in Q1 2012 compared to Q1 of 2011.
• Achieved average product price of $61.23 per boe.
• Low operating costs of $7.90 per boe helped attain high operating netbacks of $44.11 per boe.
• Year end 2011, independently evaluated, total proved and probable reserves of 9.0 million boe's which is 38% growth over the prior year end.
• Started with a bank credit facility of $45 million in January after the disposition, and increased it to $65 million in April. The amount drawn at March 31, 2012 was nominal at $1.1 million.

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

While Vero started drilling its Cardium oil inventory in late 2009, it wasn't until the latter part of 2011 that we made the strategic decision to become a pure play light oil developer and producer by selling our natural gas assets. Vero is pleased to report to its shareholders that the Company successfully executed its plan to transition to a more oil and liquids weighting throughout 2011. The decision was prudent given the difficult operating environment for natural gas producers, particularly in the last half of the year as natural gas prices continued to decline. The sale of the gas assets yielded net proceeds of approximately $196 million. This amount was used to pay off existing bank debt of $157 million and also to make a distribution of excess cash of almost $15 million to the shareholders on March 27, 2012. The remainder was retained to extinguish Vero's working capital deficiency.

As such, in Q1 2012 Vero shifted into an oil weighted producer, increasing oil production and oil weighting. Corporately, oil and NGL production increased from 25% of total production in Q1 2011 to 41% in Q1 of 2012. Specific to our Cardium production, Vero increased its aggregate production by 53% from 1,412 boe/d in Q1 of 2011 to 2,167 boe/d in Q1 of 2012. The oil and liquids weighting in the past comparable quarters had consistently been in the 68-69% range. Going forward, Vero will be targeting oil and liquids weighting of approximately 70% (90% light oil).

Vero commenced its newly re-focused operations with no debt, a small working capital surplus and an unutilized bank credit facility of $45 million. The credit facility has since been upgraded to $65 million as a result of favorable first quarter drilling results which included 8 (6.9 net) horizontal Cardium oil wells. All of these wells successfully encountered the pay zones and were put on production except for 1 (0.4 net) non-operated well with expectations this well will be completed and put on production after spring breakup. There were 3.9 net wells drilled that had no reserves assigned to them in the independent evaluators year end 2011 reserve report. The Company estimates that 10.1 net additional undeveloped horizontal locations have the potential for significant reserve bookings based on the quarter's drilling results.

In the first quarter of 2012, the combination of: one month of pre-disposition Vero (includes the natural gas asset and Cardium production) and the two months of post-disposition Vero (Cardium production only) yielded the following results:

• Funds flow of $6,678 or $0.14 per share (basic and diluted). Eliminating non-recurring cash charges for: restructuring costs; bad debts and a prior period purchase price adjustment, funds flow would have been $9,438.
  
  
• Average production of 4,572 boe/d (59% natural gas).
  
  
• Average product prices of $43.07/boe.
  
  
• Operating netback of $28.70/boe.
  
  
• Capital spending of $33,487, of which Vero spent $5,845 in acquiring a small producing property, which included approximately 120 boe/d of light oil production and several undrilled locations.
  
  
• Net debt at the end of the quarter was $22,956 and net debt to annualized Q1 funds flow was 0.9 times. Adjusting for the non-recurring cash items, this ratio comes to a more normalized ratio of 0.6 times.

2012 OUTLOOK

With the transformation of the Company complete the Company is in an enviable financial position. The renewed financial flexibility has given us the ability to direct one hundred percent of our focus to the more profitable oil commodity. The ability to adapt to a changing operating environment is paramount in this difficult and unpredictable economy. We are pleased with the transition and are eager to build a leading junior oil company. Vero is positioned to deliver solid growth on the retained assets forecasting over 65% in 2012 while maintaining a clean balance sheet. The Company intends to keep net debt to annualized cash flow under one times throughout 2012 while delivering this growth. The majority of our growth will come from the drill bit; however, we continue to look for accretive acquisitions such as the one Vero closed in the first quarter. To protect Vero's cash flow position and secure the execution of its capital plan, the Company has entered into hedges such that approximately 42% of its forecast 2012 production has a floor of just over $88/bbl Canadian. Towards the latter part of the first quarter Alberta oil producers saw unprecedented volatility in their realized prices. While WTI prices remained consistently high, the price differentials between WTI and WCS widened significantly. Pipeline and refining issues and constraints have caused volatility in WCS oil prices in March through May. This volatility has not caused us to change guidance as we believe there is adequate flexibility with our cash flow and existing bank facility. We continue to monitor the situation.

Vero has been successful in shifting its focus to oil development and production, demonstrated by increasing Cardium production from 250 boe/d (30% light oil and NGL) in the fourth quarter of 2009 to 2,167 boe/d (69% light oil and NGL) in the first quarter of 2012. Based on field estimates Vero is currently producing approximately 2,475 boe/d (71% liquids). This growth represents an 890% increase in our Cardium production over the past nine quarters. The result is a growth oriented light oil company with a strong balance sheet, a low cost structure, high corporate netbacks and the capability to generate strong cash flows.

Operationally we were successful in wrapping up the first quarter's planned activities before the onset of breakup and currently we have no operated drilling or completion activities in progress. The Company expects to start drilling operations again in late May to early June depending on both the end of spring break up as well as road bans in the field. Upon resumption of drilling we currently estimate that a total of 3 (1.9 net) horizontal light oil wells will be drilled in the second quarter.

The capital program will be primarily directed to our large multi-year drilling inventory, which includes a Cardium inventory of approximately 220 horizontal locations. Vero will continue to prudently manage the delineation and development of its asset base to ensure maximum flexibility and leverage from a financial and business strategy standpoint. More importantly, our technical and operations team, which grew production by 844% and reserves by 888% over the first six years of Vero's corporate life, will be taking these successes into the newly refocused Vero. We look forward to reporting our future successes in due course.

FINANCIAL STATEMENTS

Below is selected financial statement information for the three months ended March 31, 2012 along with comparative data for 2011. For full disclosure of our audited financials statements with notes and the Management, Discussion and Analysis, please visit our website or SEDAR.

VERO ENERGY INC. Statement of Financial Position (in thousands of Canadian dollars) (unaudited)
											March 31, 2012						December 31, 2011
ASSETS
CURRENT
Accounts receivable											12,023						14,729
Prepaid expenses and deposits											4,930						1,035
Assets held for sale											-						216,897
											16,953						232,661
Derivative contracts											-						5
Property, plant and equipment											161,117						131,882
Exploration and evaluation assets											11,751						14,492
Goodwill											5,633						5,633
											195,454						384,673
LIABILITIES
CURRENT
Accounts payable and accrued liabilities											38,841						35,762
Derivative contracts											872						539
Bank debt											1,068						158,715
Liabilities associated with assets held for sale											-						18,660
											40,781						213,676
Derivative contracts											518						-
Decommissioning liabilities											3,075						2,100
Deferred taxes											6,054						6,086
											50,428						221,862
SHAREHOLDERS' EQUITY
Share capital											129,627						216,678
Contributed surplus											15,399						14,672
Deficit											-						(68,539)
											145,026						162,811
											195,454						384,673

VERO ENERGY INC. Statement of Comprehensive Loss For the three months ended March 31, 2012 and 2011 (in thousands of Canadian dollars, except per share data) (unaudited)
	2012						2011
Petroleum and natural gas sales	17,922						29,121
Royalties	(1,812)						(2,577)
Revenue	16,110						26,544
EXPENSES
Operating	3,558						5,996
Transportation	606						1,205
Losses on derivative contracts	1,100						4,357
General and administrative	2,280						1,201
Share based compensation	609						711
Exploration and evaluation	2,766						382
Loss on disposal of assets	1,628						-
Restructuring costs	1,976						-
Depletion and depreciation	4,700						11,669
Finance income	(35)						(14)
Finance expenses	768						1,579
	19,956						27,085
NET LOSS BEFORE TAXES	(3,846)						(542)
INCOME TAXES
Deferred tax expense (recovery)	(32)						1,641
NET LOSS AND COMPREHENSIVE LOSS	(3,814)						(2,183)
NET LOSS  PER SHARE
Basic	(0.08)						(0.04)
Diluted	(0.08)						(0.04)

VERO ENERGY INC. Statement of Cash Flows For the three months ended March 31, 2012 and 2011 (in thousands of Canadian dollars) (unaudited)
							2012						2011
CASH FLOWS PROVIDED BY (USED IN) THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss							(3,814)						(2,183)
Adjustments for:
Unrealized loss on derivative contracts							857						4,301
Share based compensation							561						711
Depletion and depreciation							4,700						11,669
Accretion of decommissioning liabilities							12						95
Deferred tax expense (recovery)							(32)						1,641
Loss on disposal of assets							1,628						-
Exploration and evaluation expense							2,766						382
							6,678						16,616
Decommissioning costs incurred							-						(3)
Changes in non-cash working capital							(3,355)						5,497
							3,323						22,110
FINANCING
Changes in bank debt							(157,647)						27,972
Proceeds from stock option exercises							-						277
Distribution of capital							(14,698)						-
							(172,345)						28,249
INVESTING
Additions to petroleum and natural gas properties							(27,479)						(44,811)
Additions exploration and evaluation assets							(163)						(46)
Acquisition of producing petroleum and natural gas assets							(5,845)						(40)
Additions to administrative assets							-						(6)
Sale of petroleum and natural gas properties							195,752						-
Changes in non-cash working capital							6,757						(5,456)
							169,022						(50,359)
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". Please see the latest corporate presentation on the Vero Energy Inc. website at www.veroenergy.ca.

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, production estimates including forecast 2012 growth and commodity mix, 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, funds flow and net debt expectations, 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, funds 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 funds flow from operations can be found in the statement of funds 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 funds provided by operating activities from the statement of funds flows, adding the change in non-funds 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.

 

Doug Bartole, President & CEO, at [phone]
Gerry Gilewicz, Vice-President Finance & CFO, at [phone]
Scott Koyich, Investor Relations, [phone]
Internet:  www.veroenergy.ca