Travis Wood

Travis Wood inquired whether the forward contracting on Asian gas sales includes any contracted pricing and if there are any material changes to pricing looking out through 2026 and beyond.

Answer

CEO Jon McKenzie stated that reservoir delineation revealed larger reserves, allowing for increased gas sales through the end of the PSCs (2034 and 2040). The gas contracts themselves maintain roughly the same fixed pricing, with a slight increase, and the extensions add nearly CAD 2 billion of incremental free cash flow over the life of the fields. The liquids component continues to be valued on a Brent basis.

Travis Wood followed up on the U.S. market capture, asking for details on the anomalies that led to the 95% adjusted capture in Q4, the marketing and trading team's ability to sustain this, and the impact of other refinery downtime (e.g., Whiting) on market capture. He also inquired if the extended gas sales agreements in Asia included contracted pricing changes for 2026 and beyond.

Answer

EVP Eric Nuttall reiterated that reliability allowed Cenovus to capitalize on market opportunities, including regional supply disruptions. He explained that the company's configuration, favoring heavy crude consumption, diesel/jet length, and asphalt production, aligned favorably with Q4 market fundamentals. CEO Jon McKenzie clarified that the extended gas sales agreements for Liwan 34-2 and 29-1 were enabled by larger-than-expected reservoir delineation, allowing sales through the end of the PSCs. He noted that gas contracts maintain roughly the same, slightly higher, pricing as today, projecting over CAD 2 billion in incremental free cash flow over the fields' lives.

Travis Wood of National Bank Financial questioned if the risk profile for future German exploration has changed after recent successes and asked for Westbrick's production volume at closing. He also inquired about the reason for the acquisition's closing delay and the specific debt target that would prompt a shift in the capital return framework to favor shareholder returns more heavily.

Answer

VP Darcy Kerwin responded that while confidence is higher, each German prospect is still risked independently, though the program is now de-risked by a mix of exploration and development wells. VP Brandon McCue confirmed Westbrick volumes were as expected at ~50,000 boe/d and the minor closing delay was procedural. CFO Lars Glemser indicated that a leverage ratio around 1x net debt to FFO, similar to pre-acquisition levels, would be the likely trigger to reconsider the 40/60 capital return split.

Asked if the risk profile for future German exploration has changed, questioned the production volumes of Westbrick assets at closing, inquired about the reason for the closing delay, and sought clarity on the debt target that would trigger an increase in the capital return allocation.

Answer

Success in Germany has increased confidence, but each prospect is still risked independently; the overall program risk is lower as it now includes development wells. Westbrick volumes were around 50,000 BOE/day at closing, as expected. The closing delay was purely procedural due to holiday timing. An increase in the 40% capital return allocation would be considered once leverage returns to pre-acquisition levels of around 1x debt-to-FFO, with a reassessment planned for the second half of the year.

Travis Wood of National Bank Financial questioned if the risk profile for future German exploration has changed, inquired about Westbrick's production volumes at closing, and asked about the specific debt target needed for Vermilion to increase its shareholder return allocation above the current 40% of excess free cash flow.

Answer

VP Darcy Kerwin explained that while confidence is higher, prospects are still risked independently, with the main change being a new mix of development and exploration wells. VP Brandon McCue confirmed Westbrick volumes were as expected at ~50,000 boe/d. CFO Lars Glemser indicated that a return to the pre-acquisition leverage ratio of around 1.0x net debt to funds flow would be a likely benchmark for considering an increase in the shareholder return payout.

Asked about the reasons for the increased annual production guidance while capital guidance remained unchanged, and also inquired about the AECO gas curtailment, including its expected duration and the price needed to bring production back online.

Answer

Management attributed the production outperformance to the early start-up of the BC Montney battery and strong well performance, achieved within budget due to cost efficiencies. They explained the AECO gas curtailment is an economic decision expected to continue through the summer until prices sustainably recover to the $1.50 to $2.00/GJ range.