Vermilion Energy Inc. (TSX: VET | NYSE: VET) has announced an acquisition of privately-held Westbrick Energy Ltd. for $1.075 billion. This deal is expected to close in the first quarter of 2025.
Deal Overview
Vermilion is buying Westbrick’s assets in the Deep Basin of Alberta. These include:
- 50,000 barrels of oil equivalent per day (boe/d) of production,
- 1 million acres of land (770,000 net acres),
- Over 700 identified drilling locations, and,
- Four gas plants with 102 million cubic feet per day capacity.
The deal excludes Westbrick’s Duvernay rights on about 300,000 acres.
Strategic Rationale
Vermilion sees this as a key move in its North American strategy. The company has operated in the Deep Basin for nearly 30 years. This purchase will make Vermilion the fifth largest Deep Basin producer. The acquired assets fit well with Vermilion’s existing operations and expect to find ways to save money and improve efficiency.
The new assets should generate annual production of 50,000 boe/d and over $110 million in annual free cash flow. Vermilion expects the deal to boost its 2025 production. They forecast 126,000 to 133,000 boe/d for the year.
After the deal closes, Vermilion will produce about 135,000 boe/d and over 80% of this will come from gas. The company will have about 550 million cubic feet equivalent per day of liquids-rich gas in Alberta and British Columbia. They’ll also produce over 100 million cubic feet per day of European gas.
Asset Details
The acquired land is in the southeast part of Alberta’s Deep Basin. It includes rights to several formations: Ellerslie, Notikewin, Rock Creek, Falher, Cardium, Wilrich, and Niton.
The production mix is 75% gas and 25% liquids, and about half the revenue will come from each.
Vermilion plans to hedge some gas production to reduce financial risk. The company will update its 2025 budget and financial guidance after the deal closes. For 2025, Vermilion expects to spend $725-775 million on capital projects. Over 70% of this will go to their global gas portfolio.
FIGURE 1: Contiguous Land Position
Industry Context
This deal comes as energy companies seek to boost their natural gas holdings. Gas is seen as a transition fuel as the world moves towards cleaner energy sources. Vermilion is positioning itself as a global gas producer. They’re balancing North American assets with European gas production that gets higher prices.
Vermilion sees long-term potential in these assets. They believe they can keep production flat for over 15 years while generating significant cash flow. The company plans to focus on operational execution, debt reduction, returning capital to shareholders, and further improving its asset portfolio. This may include selling some non-core assets.
Final Thoughts
Vermilion’s purchase of Westbrick is a major move in the Canadian energy sector, significantly increasing the company’s presence in the Deep Basin. Vermilion expects it to generate substantial cash flow and provide years of drilling opportunities.
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