Stay calm and mind the bal­ance sheet. That was Ver­mil­ion En­ergy CEO Lorenzo Don­adeo’s phi­los­o­phy in 2015, as the Cal­gary-based in­ter­me­di­ate weath­ered an in­dus­try down­turn that wreaked havoc on cor­po­rate bot­tom lines and re­sulted in huge lay­offs across the sec­tor. “Hav­ing been through a cou­ple of th­ese be­fore, you re­al­ize you have to stay calm and re­as­sure the rest of the or­ga­ni­za­tion that we can work through this to­gether,” says Don­adeo, who co-founded the com­pany in 1994. “What we tried to do was fo­cus on things we can con­trol – re­duc­ing our cost struc­ture, man­ag­ing our bal­ance sheet and mak­ing sure our debt stayed at a level we were com­fort­able with.”

Don­adeo’s abil­ity to stay cool un­der pres­sure, suc­cess­fully steer Ver­mil­ion through a stormy year, still grow pro­duc­tion and pull off two sig­nif­i­cant trans­ac­tions are key rea­sons why he was cho­sen as Al­berta Oil’s 2016 CEO of the Year. Down­turns aren’t fun, and Don­adeo – with 34 years’ ex­pe­ri­ence in the busi­ness – knows this in­ti­mately. He and the com­pany went through one in 1998, and again in 2008-2009. Dur­ing those tough times, Ver­mil­ion’s top ex­ec­u­tive put a prof­itabil­ity en­hance­ment pro­gram in place. He did it again in 2015. The pro­gram is a com­pa­ny­wide man­date to do more with less, and Don­adeo says the en­tire com­pany fo­cused on re­duc­ing cap­i­tal spend­ing, op­er­at­ing costs, gen­eral and ad­min­is­tra­tive costs and in­creas­ing prof­itabil­ity and rev­enues where it could.

The pro­gram served Ver­mil­ion well in 2015. The com­pany es­ti­mates it will re­sult in sav­ings of be­tween $70 mil­lion and $80 mil­lion for the year. “When peo­ple worry too much they some­times take their eye off the ball and lose track of what they are re­ally here to do,” Don­adeo says. “The pro­gram is a way to keep ev­ery­one fo­cused.” In 2015, one of Ver­mil­ion’s fo­cuses was on cap­i­tal spend­ing. In De­cem­ber of 2014, Ver­mil­ion set its cap­i­tal bud­get guid­ance at $525 mil­lion. But as oil prices plunged early in the year, it cut it to $415 mil­lion in Fe­bru­ary. In Au­gust of 2015, Ver­mil­ion changed its cap­i­tal ex­pen­di­tures tar­get once more, in­creas­ing it to $485 mil­lion. In the end, it spent $40 mil­lion less in 2015 than in 2014, yet still achieved record quar­terly pro­duc­tion of 56,280 boe/d in the third quar­ter of 2015.

Along the way, Ver­mil­ion also made two im­por­tant ac­qui­si­tions. In June it was awarded four ex­plo­ration blocks in north­east Croa­tia near the Hun­gar­ian bor­der. Then in July it signed a farm-in agree­ment on 19 on­shore ex­plo­ration li­censes in north­west­ern Ger­many with units of ExxonMo­bil and Royal Dutch Shell. The moves in­crease Ver­mil­ion’s foot­print in Europe, a re­gion few Cana­di­an­based in­ter­me­di­ate com­pa­nies op­er­ate in. The com­pany still has a size­able pres­ence in Western Canada. Its av­er­age pro­duc­tion dur­ing the third quar­ter of 2015 from as­sets in Al­berta and Saskatchewan was

ap­prox­i­mately 25,700 boe/d. But Europe is in­creas­ingly be­com­ing an im­por­tant area for Ver­mil­ion. It first en­tered Europe in 1997, and it’s steadily built up its as­set base and land po­si­tion since then – with as­sets in France, the Nether­lands, Ger­many, Ire­land and now Croa­tia.

But why Europe? Nat­u­ral gas prices in Europe were about US$6.30 per thou­sand cu­bic feet in De­cem­ber, roughly three times what the com­pany was get­ting for the com­mod­ity in North Amer­ica. Also, oil has been trad­ing at about US$8$10 more per bar­rel in Europe than it is in Canada. Be­cause there aren’t many Cana­dian-based in­ter­me­di­ate com­pa­nies op­er­at­ing in the space, Ver­mil­ion faces less com­pe­ti­tion in the Old Con­ti­nent than it does in Western Canada. “What th­ese two ac­qui­si­tions do is po­si­tion Ver­mil­ion for the next five-to-10 years with fu­ture growth,” Don­adeo says. As for cur­rent growth, Ver­mil­ion is con­cen­trat­ing on the Cor­rib off­shore nat­u­ral gas field in Ire­land. The com­pany has an 18.5 per cent in­ter­est in the field, which is op­er­ated by Shell and pro­duced first gas in Novem­ber. Once Cor­rib reaches peak pro­duc­tion, it will add 9,700 boe/d to Ver­mil­ion’s port­fo­lio, one that will be more con­cen­trated in Europe than it will be in Canada.

In the mean­time, Don­adeo con­tin­ues to keep a watch­ful eye on Ver­mil­ion’s bal­ance sheet. The com­pany says its cap­i­tal bud­get for 2016 will be $350 mil­lion, and pro­duc­tion will in­crease to be­tween 63,000 and 65,000 boe/d. But Don­adeo has big­ger plans for the com­pany than just tread­ing wa­ter. He says that with the drilling in­ven­tory it has, Ver­mil­ion could be pro­duc­ing be­tween 75,000-80,000 boe/d by 2020. “With Cor­rib com­ing on­line, our bal­ance sheet is go­ing to be in great shape and we’ve got a great team here,” Don­adeo says. “Ver­mil­ion is go­ing to come out stronger than it was go­ing into the down­turn. We see pretty steady growth from 2020 and be­yond.”

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