Vermilion Energy finalizes Westbrick Energy acquisition, expanding Deep Basin portfolio

Vermilion Energy Inc. has successfully completed its acquisition of Westbrick Energy Ltd., strengthening its position in the Deep Basin and expanding its natural gas and liquids-rich production assets. This $1.075 billion transaction, initially announced in December 2024, aligns with Vermilion’s strategy to enhance operational scale and optimize capital efficiency in its North American portfolio.

What Does the Westbrick Acquisition Mean for Vermilion Energy?

The completion of this acquisition significantly enhances Vermilion Energy’s presence in Alberta’s Deep Basin, adding 50,000 barrels of oil equivalent per day (boe/d) of production, of which 75% is natural gas and 25% is liquids. The acquired assets include 1.1 million gross acres of land, with approximately 770,000 net acres located in a region that complements Vermilion’s existing operations. Additionally, the deal brings in four gas processing plants with a total capacity of 102 million cubic feet per day (mmcf/d), allowing for greater infrastructure control and operational synergies.

Vermilion has identified more than 700 drilling locations within the acquired acreage, spanning key formations such as Ellerslie, Notikewin, Rock Creek, Falher, Cardium, Wilrich, and Niton. The company estimates that these assets will maintain stable production levels for over 15 years while generating significant free cash flow, further supporting Vermilion’s long-term return of capital framework.

How Is Vermilion Funding the Acquisition?

To finance the acquisition, Vermilion Energy provided Westbrick shareholders with the option to receive up to 1.7 million Vermilion shares, capped at $25 million in total value. Shareholders opted for 1.1 million shares valued at $14.2 million, with the remaining balance paid in cash.

The transaction is being funded through a combination of cash on hand, a new $450 million term loan, and Vermilion’s undrawn $1.35 billion revolving credit facility. Additionally, Vermilion secured a $250 million term loan maturing in May 2028 through TD Securities Inc. and a $300 million bridge facility from Royal Bank of Canada and TD Securities Inc., reinforcing its liquidity position and financial flexibility.

What Financial Impact Will the Westbrick Assets Have?

Vermilion projects that the acquired assets will generate $275 million in net operating income (NOI) in 2025, with this figure expected to rise to $330 million in 2026, based on forward commodity pricing. The net operating income multiple for the acquisition stands at 3.9x, compressing to 3.3x in 2026, highlighting the increasing value of the transaction over time.

The assets are anticipated to deliver $110 million in annual free cash flow, significantly boosting Vermilion’s ability to return capital to shareholders. The acquisition price per proved developed producing (PDP) reserves stands at $11.70 per barrel of oil equivalent (boe), with an implied recycle ratio of 1.3x in 2025, increasing to 1.5x in 2026, reflecting enhanced operational efficiency.

Post-acquisition, Vermilion’s total production is forecasted to range between 126,000 and 133,000 boe/d in 2025, with over 80% of its output derived from natural gas assets across Canada and Europe. To mitigate financial risks associated with commodity price fluctuations, Vermilion intends to hedge portions of its natural gas production, leveraging its exposure to European natural gas markets, where pricing remains favorable.

How Does the Acquisition Strengthen Vermilion’s Long-Term Strategy?

This acquisition is a crucial step in Vermilion’s long-term portfolio optimization strategy, enhancing its operational footprint while allowing for significant capital efficiencies. The newly acquired assets integrate seamlessly with Vermilion’s existing Deep Basin holdings, enabling the company to reduce operating costs, optimize gas marketing strategies, and unlock new development opportunities.

Vermilion has undertaken $1 billion in debt reduction since 2020, creating the financial capacity to execute this transaction without jeopardizing balance sheet stability. Following the completion of the acquisition, Vermilion expects to hold $2.0 billion in net debt, with a pro forma year-end 2025 net debt-to-fund flows from operations (FFO) ratio of 1.5x. To further accelerate debt reduction, the company plans to divest non-core assets, ensuring that capital remains allocated to high-quality, high-return projects.

How Does the Acquisition Impact Vermilion’s Global Gas Business?

With the Westbrick acquisition, Vermilion strengthens its status as a leading global gas producer, operating across Canada, Ireland, Germany, the Netherlands, and Croatia. The company forecasts $1.2 billion in fund flows from operations (FFO) in 2025, generating $450 million in free cash flow after capital expenditures.

Vermilion’s capital allocation strategy post-acquisition will focus on maintaining a 40% return of excess free cash flow to shareholders, with the payout increasing to 50% once debt targets are achieved. The absolute level of capital returned to shareholders is expected to remain equivalent to pre-acquisition levels in the near term, with significant upside potential in the medium to long term.

The company remains committed to high-grading its asset portfolio, ensuring that capital investment is directed towards low-cost, high-margin natural gas projects. Vermilion’s pro forma production is set to exceed 135,000 boe/d, with over 550 mmcfe/d of liquids-rich gas produced in Alberta and British Columbia, supplemented by over 100 mmcf/d of high-netback European gas production.

What Are Investors Watching Post-Acquisition?

Investor sentiment towards Vermilion Energy has remained closely tied to natural gas pricing trends, debt management, and capital allocation priorities. The integration of Westbrick’s assets is expected to have a positive impact on earnings per share (EPS) and free cash flow per share, but investors will monitor Vermilion’s execution on cost synergies, production optimization, and debt reduction targets.

Market analysts anticipate that Vermilion’s strong balance sheet and disciplined capital allocation strategy will allow it to maintain shareholder returns while continuing to enhance its asset portfolio. The company’s upcoming Q4 2024 earnings release and updated 2025 financial guidance, scheduled for March 5, 2025, will provide further insight into the post-acquisition financial outlook.

As Vermilion advances its global gas production strategy, its ability to navigate commodity market fluctuations, optimize its asset portfolio, and maintain financial discipline will play a pivotal role in determining long-term shareholder value.