Vermilion Energy Inc. Announces Results for the Three Months Ended March 31, 2013 (2024)

CALGARY, May 1, 2013 /CNW/ -Vermilion Energy Inc. ("Vermilion" or the "Company") (TSX, NYSE:VET) is pleased to report interim operating and unaudited financialresults for the three months ended March 31,2013.

HIGHLIGHTS

• Recorded average production of 38,707 boe/d during the firstquarter of 2013, compared to 36,265 boe/d in the fourth quarter of2012. Quarter-over-quarter growth was primarily attributable tostrong Canadian and European production volumes, partially offsetby decreased Australia production due to drilling activities andcyclone downtime.
• Generated fund flows from operations of $163.6 million ($1.65 per share) in the first quarter of 2013, ascompared to $141.7 million($1.43 per share) in the fourthquarter of 2012 and $151.1 million($1.56 per share) in the firstquarter of 2012. Fund flows from operations for the firstquarter of 2013 were 15% higher quarter-over-quarter and 8% higheryear-over-year. Due to the timing of shipments, first quarter fundflows from operations were positively impacted by inventory drawsin France and Australia of approximately 141,000 and 103,000barrels, respectively, accounting for part of the increase in fundflows from operations.
• Vermilion continues to benefit from strong pricing driven bysignificant exposure to Brent crude and high-netback European gas.Brent crude, representing 40% of the Company's production, averageda US $18.18 per bbl premium to WestTexas Intermediate and a US $25.13per bbl premium to Edmonton Sweet index during the first quarter.Vermilion's natural gas production in the Netherlands, representingapproximately 16% of production, received an average price of$10.09 per mcf during the firstquarter of 2013.
• Continued to grow production in the Company's Cardium light oilplay in Western Canada as the Company continues with the long-termdevelopment of its position. Vermilion has increased Cardiumrelated production from approximately 1,000 boe/d in 2010 to over8,400 boe/d during the first quarter of 2013. Vermilionparticipated in the drilling of 20.1 net Cardium wells and thecompletion of 24.0 net Cardium wells during the first quarter of2013.
• Began horizontal development with the drilling of two grosswells in the Mannville liquids-rich gas play in the Drayton Valleyarea in west central Alberta. The first well (50% Vermilion workinginterest) was put on production during the first quarter at a rateof 3.6 mmcf/d of natural gas and 515 bbls/d ofcondensate¹. Subsequent to the end of the first quarter,the second well (82% working interest) was put on production at arate of 2.6 mmcf/d of natural gas and 100 bbls/d ofcondensate².
• Increased the Company's position in the Duvernay liquids-richnatural gas resource play with the acquisition of an additional21.75 net sections in the first quarter, bringing Vermilion's totalland position to 272 net sections. Vermilion's land position spansthe breadth of the liquids-rich natural gas fairway, and wasassembled for approximately $74 milliondollars (approximately $425per acre). In the first quarter, Vermilion completed its thirdDuvernay vertical appraisal well and is currently evaluating theresults.
• Awarded an exploration license for the Akkrum concession in theNetherlands. The Akkrum concession consists of over 54,000acres situated directly between the Company's existing Gorredijkand Leeuwarden concessions. Along with the Hemelum and Opmeerconcessions awarded in 2012 and with over 70 prospects identified,Vermilion intends to increase its Netherlands activity and hasbegun planning and hiring to scale up operations and technicalstaff in the region.
• Drilled two sidetracked laterals from existing wells inAustralia, including the longest horizontal section drilled atWandoo to date at 3,400 metres. The first well produced at aninitial rate of approximately 3,000 bbls/d of oil³ priorto the end of the first quarter. Subsequent to the end of the firstquarter, the second well produced at an initial rate ofapproximately 6,000 bbls/d of oil⁴. With a focus onmaximizing oil recovery from the new wells, the Company intends toproduce these wells at significantly restricted rates beginning inthe second quarter of 2013. Vermilion expects to maintainproduction levels at Wandoo between 6,000 and 8,000 boe/d for theforeseeable future.
• In Ireland, Corrib tunneling activities related to thecompletion of the nine kilometer onshore pipeline continued.Tunneling, construction and installation activities, commissioningand start-up are anticipated to take approximately two years tocomplete. First gas is anticipated in late 2014 or early 2015 andthe project is expected to reach peak production levels inmid-2015.
• In view of production results and well test data received todate, Vermilion is tightening its production guidance range for2013 from the previously disclosed range of 39,000-40,500 boe/d to39,500-40,500 boe/d.
• Increased the monthly dividend 5.3% to $0.20 per share, which became effective for theJanuary 2013 dividend paid onFebruary 15, 2013.
• Vermilion began trading on the New York Stock Exchange onMarch 12, 2013 under the tickersymbol "VET". As an international oil and gas producer, Vermilionbelieves the secondary listing may assist in broadening itsshareholder base and improving share trading liquidity.
• Recognized for the fourth consecutive year by the Great Placeto Work® Institute in both Canada and France. Vermilionranked as the 22nd Best Workplace in Canada amongst 318corporations that participated in the study, and is the only oiland gas company of its size to be included in this year's Top 25.Vermilion's French subsidiary ranked as the 27th Best Workplace inFrance.

Annual General and Special Meeting Webcast

As Vermilion's Annual General and SpecialMeeting is being held today, May 1,2013 at 1:30 PM MST at theMetropolitan Centre, Calgary, Alberta, there will not be a firstquarter conference call, however, a presentation will be given byMr. Lorenzo Donadeo, President & CEO after the conclusion ofthe formal part of this meeting. Please visithttp://www.vermilionenergy.com/ir/eventspresentations.cfm and clickon webcast under upcoming events to view the presentation whichwill commence at approximately 1:45 PMMST.

ABBREVIATIONS

DISCLAIMER

Certain statements included or incorporated byreference in this document may constitute forward lookingstatements or financial outlooks under applicable securitieslegislation. Such forward looking statements or informationtypically contain statements with words such as "anticipate","believe", "expect", "plan", "intend", "estimate", "propose", orsimilar words suggesting future outcomes or statements regarding anoutlook. Forward looking statements or information in thisdocument may include, but are not limited to:

• capital expenditures;
• business strategies and objectives;
• reserve quantities and the discounted present value of futurenet cash flows from such reserves;
• petroleum and natural gas sales;
• future production levels (including the timing thereof) andrates of average annual production growth;
• exploration and development plans;
• acquisition and disposition plans and the timing thereof;
• operating and other expenses, including the payment of futuredividends;
• royalty and income tax rates;
• the timing of regulatory proceedings and approvals; and
• the timing of first commercial natural gas; and the estimate ofVermilion's share of the expected natural gas production from theCorrib field.

Such forward looking statements or informationare based on a number of assumptions all or any of which may proveto be incorrect. In addition to any other assumptionsidentified in this document, assumptions have been made regarding,among other things:

• the ability of Vermilion to obtain equipment, services andsupplies in a timely manner to carry out its activities in Canadaand internationally;
• the ability of Vermilion to market crude oil, natural gasliquids and natural gas successfully to current and newcustomers;
• the timing and costs of pipeline and storage facilityconstruction and expansion and the ability to secure adequateproduct transportation;
• the timely receipt of required regulatory approvals;
• the ability of Vermilion to obtain financing on acceptableterms;
• foreign currency exchange rates and interest rates;
• future crude oil, natural gas liquids and natural gas prices;and
• Management's expectations relating to the timing and results ofexploration and development activities.

Although Vermilion believes that theexpectations reflected in such forward looking statements orinformation are reasonable, undue reliance should not be placed onforward looking statements because Vermilion can give no assurancethat such expectations will prove to be correct. Financialoutlooks are provided for the purpose of understanding Vermilion'sfinancial strength and business objectives and the information maynot be appropriate for other purposes. Forward lookingstatements or information are based on current expectations,estimates and projections that involve a number of risks anduncertainties which could cause actual results to differ materiallyfrom those anticipated by Vermilion and described in the forwardlooking statements or information. These risks anduncertainties include but are not limited to:

• the ability of management to execute its business plan;
• the risks of the oil and gas industry, both domestically andinternationally, such as operational risks in exploring for,developing and producing crude oil, natural gas liquids and naturalgas;
• risks and uncertainties involving geology of crude oil, naturalgas liquids and natural gas deposits;
• risks inherent in Vermilion's marketing operations, includingcredit risk;
• the uncertainty of reserves estimates and reserves life;
• the uncertainty of estimates and projections relating toproduction and associated expenditures;
• potential delays or changes in plans with respect toexploration or development projects
• Vermilion's ability to enter into or renew leases on acceptableterms;
• fluctuations in crude oil, natural gas liquids and natural gasprices, foreign currency exchange rates and interest rates;
• health, safety and environmental risks;
• uncertainties as to the availability and cost offinancing;
• the ability of Vermilion to add production and reserves throughexploration and development activities;
• the possibility that government policies or laws may change orgovernmental approvals may be delayed or withheld;
• uncertainty in amounts and timing of royalty payments;
• risks associated with existing and potential future law suitsand regulatory actions against Vermilion; and
• other risks and uncertainties described elsewhere in thisdocument or in Vermilion's other filings with Canadian securitiesregulatory authorities.

The forward looking statements or informationcontained in this document are made as of the date hereof andVermilion undertakes no obligation to update publicly or revise anyforward looking statements or information, whether as a result ofnew information, future events or otherwise, unless required byapplicable securities laws.

Initial production and short-term rates are notnecessarily indicative of long-term performance or of ultimaterecovery.

In accordance with National Instruments 51-101,natural gas volumes have been converted on the basis of sixthousand cubic feet of natural gas to one barrel of oilequivalent. Barrels of oil equivalent (boe) may bemisleading, particularly if used in isolation. A boeconversion ratio of six thousand cubic feet to one barrel of oil isbased on an energy equivalency conversion method primarilyapplicable at the burner tip and does not represent a valueequivalency at the wellhead.

Financial data contained within this document are reported inCanadian dollars, unless otherwise stated.

¹ The above table includesnon-GAAP measures which may not be comparable to othercompanies. Please see the "Non-GAAP Measures" section ofManagement's Discussion and Analysis.

OPERATIONAL REVIEW AND OUTLOOK

Performance during the first quarter of 2013highlights Vermilion's strong operations and the benefits of globalcommodity exposure. Vermilion achieved consolidated productionvolumes of 38,707 boe/d and record quarterly fund flows fromoperations of $163.6 million.Vermilion was active in the first quarter drilling in Canada,Australia and France, positioning the Company for growth for theremainder of 2013.

Vermilion's global commodity exposure continuesto afford the Company a significant competitive advantage with 40%of first quarter production volumes comprised of Brent-based crudeand 18% comprised of high-netback European gas. Vermilion'sBrent-based crude realized an average price of $113.34 per bbl, generating a nearly 30% premiumover the Edmonton Sweet index which reflects pricing for Canadianlight crude. The Company's Netherlands natural gas productionreceived an average price $10.09 permcf, a premium of $6.76 per mcf orover 200% compared to an average first quarter price of$3.33 per mcf for AECO natural gas inCanada. Vermilion's significant exposure to international pricingfor the Company's high-netback liquids and European gas, enabledfund flows from operations growth of 15% quarter-over-quarter andoutpaced production growth of 7%.

Canadian development activities continue to befocused on the full scale development of the Cardium light oilplay. The Company's well performance to date remains consistent andcontinues to outpace that of most peers in the area, demonstratingthe quality of Vermilion's land position in the West Pembinaregion. Since entering the play in 2009, the Company has drilled201 gross wells (140 net) in the Cardium and increased productionto over 8,400 boe/d. Vermilion continues to advance on a drillingand completions learning curve, including the implementation ofwater-based fracturing systems and multi-well pad drilling, and iscurrently the only Company in the region employing long reach wells(greater than one mile in length). Having generated a significantreduction in costs by drilling longer reach 1.5 mile horizontalwells, Vermilion is planning on drilling a higher percentage of 1.5mile wells and potentially several 2.0 mile pilot wells over theremainder of 2013. Drilling longer horizontal wells has allowed thecompany to reduce well costs from more than $5 million per section to approximately$3 million per section in the firstquarter of 2013. With a significant drilling inventory identifiedin its full Cardium development plan, Vermilion anticipatesinventory to last five to six years at a drilling rate of 40 to 60wells per year.

In the Mannville formation, positioned below theCardium in the stratigraphic column, the Company has a significantinventory of liquids-rich natural gas horizontal drillingprospects. Vermilion plans to drill six gross (3.2 net) horizontalMannville wells in 2013. Initial production results are nowavailable from the first two wells in the Mannville program. Thefirst well (50% Vermilion working interest) was put on productionduring the first quarter at a rate of 3.6 mmcf/d of natural gas and515 bbls/d of condensate¹. Subsequent to the end of thefirst quarter, the second well (82% working interest) was put onproduction at a rate of 2.6 mmcf/d of natural gas and 100 bbls/d ofcondensate².

In the first quarter, Vermilion drilled andcored a third vertical stratigraphic test well in the Duvernayliquids-rich natural gas resource play. The Company has amassed 272net sections in the Edson area capturing the full breadth of theliquids-rich natural gas fairway for approximately $74 million ($425per acre). Vermilion's Duvernay rights largely underlie theCompany's Cardium and Mannville positions, allowing for potentialinfrastructure, operational and timing advantages should full-fielddevelopment of the Duvernay commence. The Duvernay has thepotential to provide Vermilion with very significant developmentopportunities in its core Canadian operating region, and maydeliver production growth into the latter half of the decade andbeyond.

Australian activity in the first quarter of 2013focused on the drilling program at Wandoo. Two sidetrack horizontallaterals from existing wells were drilled, including the longesthorizontal section drilled at Wandoo to date at 3,400 metres. Thefirst well was spud in early February, completed in mid-March, andput on production at an initial rate of approximately 3,000 bbls/dof oil³ prior to the end of the first quarter. Thesecond well was spud in mid-March, and put on production at aninitial rate of approximately 6,000 bbls/d of oil⁴subsequent to the end of the first quarter. The jack-up drillingrig was demobilized and released in early April. The new sidetrackstested several drilling and geological concepts at Wandoo,including extreme long-reach horizontal drilling and furtherexploitation of the less-developed southern part of the field. Theresults will be incorporated into the geologic and numericalreservoir simulation models of Wandoo, with the objective ofexpanding and improving the Company's long-term drillinginventory. While the initial production rates are indicativeof the high productivity that can be generated through extreme longreach horizontal drilling in this very permeable reservoir, theCompany intends to significantly restrict production from thesewells after an initial production period to maximize long-termresource recovery. Vermilion anticipates maintaining productionlevels between 6,000 and 8,000 boe/d in Australia for theforeseeable future with drilling programs approximately every 18 to24 months. Australia continues to generate strong netbacks andgarners pricing at a premium to the Dated Brent index and incurs notransportation cost as production is sold directly from theplatform.

During the first quarter of 2013, Vermilionbegan a five well drilling program in the Champotran fieldincluding four infill wells as a part of a waterflood expansion andone field extension test well. The Company had two wells drilledand a further two spud at the end of the first quarter. Additionalactivities in France included workovers, recompletions andfacilities upgrades in the Paris and Aquitaine basins. Vermilion's2012 acquisitions were a natural addition to the Company's assetbase in France and further secured the Company's position as theleading oil producer in France. Vermilion continues to work towardintegration of these assets and the identification of furtheropportunities to decrease the current cost structure and increaseproduction through optimized operations, water flood management anddevelopment drilling. Vermilion's French assets are consistent withthe Company's sustainable growth-and-income model, with low basedecline rates, high quality Brent-based production, strong cashflow generation and numerous long-term investmentopportunities.

Vermilion continues permitting and drillingpreparations in the Netherlands with respect to a three welldrilling campaign planned for 2013. The Company's Garijpdebottlenecking project was completed in the first quarter of 2013,enabling incremental production from the existing Vinkega-1 welland first gas from Vinkega-2 in the second quarter. Facilityconstruction for Langezwaag-1 is ongoing with production additionsanticipated in the second quarter of 2013. The Company is lookingto increase activity in the Netherlands to maintain a rollinginventory of production-adding projects with the intent toultimately establish a reliable long-term growth profile. In March,the Company was awarded an exploration license for the Akkrumconcession, located directly between Vermilion's existing Gorredijkand Leeuwarden concessions. Covering more than 54,000 acres, theAkkrum concession adds to the Company's already significant landposition and future projects in the Netherlands.

In Ireland, the tunnel boring machine wasinstalled on December 16, 2012 andhas begun tunneling activities related to the completion of thenine kilometer onshore pipeline for Corrib. Tunneling,construction and installation, commissioning and start-up areanticipated to take approximately two years to complete with firstgas anticipated in late 2014 or early 2015. Peak production isexpected to be reached in mid-2015 with production levels ofapproximately 55 mmcf/d (9,000 boe/d) net to Vermilion.

Vermilion remains positioned to deliver strongoperational and financial performance over the next several years.The Company continues to target growth of approximately 30% to50,000 boe/d in 2015 and fund flows from operations growth ofapproximately 40% over the same period (assuming current commoditypricing indications are realized). Near-to-medium term growth isexpected to be driven by continued Cardium and Mannvilledevelopment in Canada, high-netback natural gas in the Netherlands,and first gas from Corrib in late 2014 or early 2015. France andAustralia production are anticipated to provide reliable productionas well as significant cash flow during this time from Brent-basedpricing, with the potential to provide production growth asVermilion expands its technical work to mature investment projectsin these areas.

Additional medium and long-term growth isexpected to be generated by the Company's New Growth Initiativewhich is focused on the identification and development of emergingresource plays in Canada and the greater European region, includingthe Duvernay liquids-rich natural gas resource. As an example ofthe Company's greater European effort, Vermilion has acquired anexploration permit for 2.34 million acres in Morocco. Thisopportunity is consistent with the Company's low-cost, early-entrystrategy to secure large positions in unconventional shale oil andnatural gas plays, providing significant optionality and potentialfor growth into the latter half of the decade.

Vermilion increased its monthly dividend 5.3% inthe first quarter of 2013, from $0.19to $0.20 per share. Theincrease became effective for the January2013 dividend paid February 15,2013. Based on increasing certainty for Corrib developmenttiming and the strength of anticipated future cash flows from avariety of sources, the Company is committed to providing areliable and growing dividend stream to investors.

On March 12, 2013,Vermilion shares began trading on the New York Stock Exchange underthe ticker symbol "VET". As an international oil and gasproducer, the Company believes the secondary listing may assist inbroadening its investor base and increasing trading liquidity.

Vermilion's conservative fiscal management andcapital discipline leaves the Company well positioned to executeits growth-and-income model and provide growth to investors on aper share basis. The management and directors of Vermilion continueto hold approximately 8% of the outstanding shares and remaincommitted to delivering superior rewards to all stakeholders.Continuing to be acknowledged for excellence in its businesspractices, Vermilion was recognized for the fourth consecutive yearby the Great Place to Work® Institute in both Canada and France.Vermilion ranked as the 22nd Best Workplace in Canada among morethan 315 companies. Vermilion's France subsidiary ranked as the27th Best Workplace in the country.

MANAGEMENT'S DISCUSSION ANDANALYSIS

The following is Management's Discussion andAnalysis ("MD&A"), dated April 30,2013, of Vermilion Energy Inc.'s ("Vermilion" or the"Company") operating and financial results as at and for the threemonths ended March 31, 2013 ascompared with the corresponding period in the prior year.

This discussion should be read in conjunctionwith the unaudited condensed consolidated interim financialstatements for the three months ended March31, 2013 and the audited consolidated financial statementsfor the year ended December 31, 2012and 2011, together with accompanying notes. Additionalinformation relating to Vermilion, including its Annual InformationForm, is available on SEDAR at www.sedar.com or on Vermilion'swebsite at www.vermilionenergy.com.

The unaudited condensed consolidated interimfinancial statements for the three months ended March 31, 2013 and comparative information havebeen prepared in Canadian dollars, except where another currencyhas been indicated, and in accordance with IAS 34, "Interimfinancial reporting", as issued by the International AccountingStandards Board.

NON-GAAP MEASURES

This report includes non-GAAP measures asfurther described herein. These non-GAAP measures do not havestandardized meanings prescribed by International FinancialReporting Standards ("IFRS" or, alternatively, "GAAP") andtherefore may not be comparable with the calculations of similarmeasures for other entities.

"Fund flows from operations" representscash flows from operating activities before changes in non-cashoperating working capital and asset retirement obligationssettled. Management considers fund flows from operations andfund flows from operations per share to be key measures as theydemonstrate Vermilion's ability to generate the cash necessary topay dividends, repay debt, fund asset retirement obligations andmake capital investments. Management believes that byexcluding the temporary impact of changes in non-cash operatingworking capital, fund flows from operations provides a usefulmeasure of Vermilion's ability to generate cash that is not subjectto short-term movements in non-cash operating working capital.

"Fund flows from operations (excluding theCorrib project)" represents fund flows from operationsexcluding expenses related to the Corrib project. Managementbelieves that by excluding expenses related to the Corrib project,fund flows from operations (excluding the Corrib project) providesa useful measure of Vermilion's ability to generate cash from itscurrent producing assets.

The most directly comparable GAAP measure tofund flows from operations and fund flows from operations(excluding the Corrib project) is cash flows from operatingactivities.

Cash flows from operating activities aspresented in Vermilion's consolidated statements of cash flows arereconciled to fund flows from operations and fund flows fromoperations (excluding the Corrib project) as follows:

"Cash dividends per share" representscash dividends declared per share by Vermilion.

"Net dividends" are dividends declaredless proceeds received by Vermilion for the issuance of sharespursuant to the dividend reinvestment plan, both as presented inVermilion's consolidated statements of changes in shareholders'equity. Dividends both before and after the dividendreinvestment plan are reviewed by management and are assessed as apercentage of fund flows from operations to analyze the amount ofcash that is generated by Vermilion which is being used to funddividends. Dividends declared is the most directly comparableGAAP measure to net dividends.

"Total net dividends, capital expendituresand asset retirement obligations settled" are net dividendsplus the following amounts from Vermilion's consolidated statementsof cash flows: drilling and development, exploration andevaluation, dispositions and asset retirement obligationssettled.

"Total net dividends, capital expendituresand asset retirement obligations settled (excluding the Corribproject)" are total net dividends, capital expenditures andasset retirement obligations settled excluding drilling anddevelopment and asset retirement obligations settled relating tothe Corrib project.

Total net dividends, capital expenditures andasset retirement obligations settled and total net dividends,capital expenditures and asset retirement obligations settled(excluding the Corrib project) are reviewed by management and areassessed as a percentage of fund flows from operations and fundflows from operations (excluding the Corrib project) to analyze theamount of cash that is generated by Vermilion that is available torepay debt and fund potential future acquisitions and capitalexpenditures.

Dividends declared, total net dividends, capitalexpenditures and asset retirement obligations settled and total netdividends, capital expenditures and asset retirement obligationssettled (excluding the Corrib project) are reconciled to their mostdirectly comparable GAAP measures as follows:

"Net debt" is the sum of long-term debtand working capital as presented in Vermilion's consolidatedbalance sheets. Net debt is used by management to analyze thefinancial position and leverage of Vermilion. The mostdirectly comparable GAAP measure is long-term debt.

Long-term debt as presented in Vermilion'sconsolidated balance sheets is reconciled to net debt asfollows:

"Netbacks" are per boe and per mcfmeasures used in operational and capital allocation decisions.

"Diluted shares outstanding" is the sumof shares outstanding at the period end plus outstanding awardsunder Vermilion's equity based compensation plan, based on currentestimates of future performance factors and forfeitures. The mostdirectly comparable GAAP measure is shares outstanding.

Shares outstanding is reconciled to dilutedshares outstanding as follows:

OPERATIONAL ACTIVITIES

Canada

Vermilion drilled 24 (22.5 net) wells during thefirst quarter of 2013, including 20 (20 net) operated Cardiumhorizontal wells and one (0.1 net) non-operated Cardium horizontalwell. Since entering the play in 2009, the Company has drilled atotal of 201 (140 net) wells in the Cardium. In the first quarterof 2013, Vermilion completed its third vertical test well in theDuvernay and drilled two (1.3 net) Mannville liquids-rich naturalgas wells.

France

Vermilion commenced its Champotran drillingprogram with two wells drilled and two wells spud at the end of thefirst quarter. The Company completed a number of workovers in boththe Paris and Aquitaine basins. Vermilion continues to work towardsthe full integration of the assets acquired through two separatetransactions in 2012 and the identification of further optimizationand infill drilling opportunities.

Netherlands

Operating activities in the first quarterfocused on facility maintenance and site construction. Surfacefacilities for Vinkega-2 and Langezwaag-1 are under construction,with first gas for both wells anticipated in the second quarter of2013. The Company's debottlenecking project at Garijp was completedin the first quarter, ahead of schedule, and will enableincremental production additions from Vinkega-2 and other wells tobe brought on-stream. In March, Vermilion was awarded theexploration license for the Akkrum concession, covering more than54,000 acres and located between the Company's existing Gorredijkand Leeuwarden concessions.

Australia

Vermilion conducted a two well drilling programat Wandoo during the first quarter of 2013. These wells werehorizontal sidetracks from existing well bores. The first well wasspud early February and completed mid-March, the second was thenspud and completed late March. The rig was demobilized and releasedsubsequent to quarter end.

PRODUCTION

Average total production in Canada of 16,140boe/d during the first quarter of 2013 represented an increase of13% compared to 14,323 boe/d in the fourth quarter of 2012 and 2%as compared to 15,848 boe/d in the first quarter of the prior year.The increased volumes were largely attributable to continueddevelopment in the Cardium and initiation of a horizontal drillingprogram in the Mannville, as well as previously shut-in dry naturalgas being brought back on-stream. Vermilion's exposure to oil andliquids represented approximately 58% of Canadian production in thefirst quarter of 2013 compared to 56% in the first quarter of2012.

France production averaged 11,032 boe/d in thefirst quarter of 2013, representing a 5% increase compared tofourth quarter 2012. This increase is largely attributable tovolumes associated with Vermilion's acquisition completed inDecember 2012 and continued workoverand recompletion activities largely offsetting naturaldeclines.

Netherlands average production of 6,248 boe/d inthe first quarter of 2013 represented an increase of 12%quarter-over-quarter and 6% year-over-year. Followingshutdown for facility upgrades, the Slootdorp-4 well wasreactivated in the first quarter contributing to the increasedproduction.

Australia production averaged 5,287 boe/d duringthe first quarter of 2013, compared to 5,873 boe/d in the fourthquarter of 2012 and 6,648 boe/d in the first quarter of 2012. Thedecrease in production represents downtime associated with thetwo-well drilling program and seasonal cyclone activity. Productionadditions from the two wells are anticipated for the second quarterof 2013. Vermilion expects to sustain annual average productionbetween 6,000 and 8,000 boe/d over the next few years with two tothree well drilling programs every other year.

FINANCIAL REVIEW

Fund flows from operations for the first quarterof 2013 increased compared to both the first and fourth quarters of2012.On a quarter-over-quarter basis, the increase was aresult of significantly higher petroleum and natural gas sales,driven by an increase in crude oil sales volumes and favorablecrude oil and natural gas pricing.The increase in crude oilsales volumes was due in part to a draw of crude oil inventory inFrance and Australia totalling approximately 244,000 bbls duringthe first quarter of 2013. On a year-over-year basis, the increasein fund flows from operations occurred despite relativelyconsistent petroleum and natural gas sales due to a decrease inPRRT, which resulted from increased capital expenditures for the2013 Australian drilling campaign, and the absence of the$8.5 million of transfer taxes paidin the first quarter of 2012 for the first of two acquisitions inFrance.

Cash flow from operating activities increasedfor the first quarter of 2013 compared to both the first and fourthquarter of 2012. This increase was a result of theaforementioned changes to fund flows from operations, coupled withfavorable timing differences pertaining to working capital.

Net earnings for the first quarter of 2013decreased when compared to the fourth quarter of 2012. Thisdecrease occurred despite significantly higher petroleum andnatural gas sales due to an unrealized foreign exchange loss in thecurrent quarter versus an unrealized foreign exchange gain in theprevious quarter. Unrealized foreign exchange gains andlosses are non-cash charges that result from the translation ofEuro denominated loans made by Vermilion to its subsidiaries.On a year-over-year basis, the decrease in net earnings wasprimarily the result of an increase in deferred tax expense in2013, resulting from the timing of the deductibility of capitalexpenditures for tax purposes, and an increase in depletionexpense.

Vermilion's net debt and long-term debtincreased from December 31, 2012 as aresult of draws on the revolving credit facility to fund currentyear development capital expenditures. The increase in netdebt and long-term debt from March 31,2012 was the result of the second of two acquisitions inFrance during 2012 and current year development capitalexpenditures. In addition, December31, 2012 and March 31, 2013long-term debt included the impact of payment of the US$135 million deferred payment, which pertainedto the 2009 acquisition of Vermilion's 18.5% non-operated interestin the Corrib field.

The ratio of total net dividends, capitalexpenditures and asset retirement obligations settled (excludingcapital expenditures and asset retirement obligations settled onthe Corrib project) expressed as a percentage of fund flows fromoperations was relatively consistent quarter-over-quarter. Ona year-over-year basis, the increase in this ratio is primarily theresult of increased capital expenditures during the current periodrelating to drilling activity in Australia, Canada and France.

COMMODITY PRICES

Reference prices

Overall, crude oil prices increased during thefirst quarter of 2013 as compared to the fourth quarter of2012. WTI increased by 7% quarter-over-quarter as a result ofthe U.S. economy showing signs of improving growth and improvedtransportation capacity for crude oil from the U.S. Midwest to theGulf Coast. The increase in WTI coupled with a modest 2%increase in Dated Brent resulted in a narrowing differentialbetween the two reference prices; however both WTI and the EdmontonSweet index continued to trade at a significant discount($18.18 and $25.13 per barrel,respectively) to Dated Brent.

The AECO reference price was relativelyunchanged from the fourth quarter of 2012, however AECO pricing wassignificantly higher when compared to the first quarter of 2012 asa result of relatively flat North American production coupled withdownward trending storage levels.

Realized pricing

The realized price of Vermilion's crude oil inCanada is directly linked to WTI but is subject to marketconditions in Western Canada. These market conditions canresult in fluctuations in the pricing differential, as reflected bythe Edmonton Sweet index price. The realized price ofVermilion's NGLs in Canada is based on product specificdifferentials pertaining to trading hubs in the U.S. Therealized price of Vermilion's natural gas in Canada is based on theAECO spot price in Alberta.

Vermilion's crude oil in France and Australia ispriced with reference to Dated Brent.

As of January 1,2013, the price of Vermilion's natural gas in theNetherlands is now based on the TTF day-ahead index, as determinedon the Title Transfer Facility Virtual Trading Point operated byDutch TSO Gas Transport Services, plus various fees.GasTerra, a state owned entity, continues to purchase all naturalgas produced by Vermilion in the Netherlands. Prior to 2013,the natural gas price received by Vermilion in the Netherlands wascalculated using a trailing average of Dated Brent and the naturalgas prices from European trading hubs.

Average realized prices in Vermilion'sjurisdictions will differ from their corresponding averagereference prices due to a number of factors, including the timingof the sale of production, differences in the quality of productionand point of settlement. In Canada, average realized pricesare also impacted by the production mix of crude oil, NGLs andnatural gas.

On a consolidated basis, for the three monthsended March 31, 2013, crude oil andNGL production represented approximately 65% of total production(three months ended March 31, 2012 -66%).

CAPITAL EXPENDITURES AND ACQUISITIONS

Capital expenditures:

Capital expenditures for the first quarter of2013 were higher than both the first and fourth quarters of2012. On a quarter-over-quarter basis, capital expenditureswere higher primarily as a result of increased capital expendituresin Australia related to the 2013 drilling campaign. On ayear-over-year basis, capital expenditures were higher as a resultof the aforementioned Australia drilling campaign in addition toincreased drilling activity in both Canada and France.

PETROLEUM AND NATURAL GAS SALES

Vermilion's consolidated petroleum and natural gas sales for thefirst quarter of 2013 were higher than the fourth quarter of 2012as a result of increased sales volumes, including an inventory drawin both Australia and France, in addition to an increase in therealized price of crude oil.

Vermilion's consolidated petroleum and naturalgas sales for the first quarter of 2013 remained relativelyunchanged as compared to the same period in the prior year as theimpact of the decrease in crude oil volumes sold and prices wasoffset by a significant increase in North American natural gasprices.

CRUDE OIL INVENTORY

Vermilion carries an inventory of crude oil inFrance and Australia, which is a result of timing differencesbetween production and sales.

The following table summarizes the changes inVermilion's crude oil inventory positions:

Inventory as at March 31, 2013 wascomprised of the following components:

DERIVATIVE INSTRUMENTS

The following tables summarize Vermilion's outstanding riskmanagement positions as at March 31,2013:

From time to time Vermilion enters into new riskmanagement positions. Information regarding outstanding riskmanagement positions is available on Vermilion's website atwww.vermilionenergy.com/ir/hedging.cfm.

The following table summarizes the impact of derivativeinstruments on cash flows from operating activities:

The realized loss on derivative instruments for the first quarterof 2013 is comprised primarily of amounts paid to settle DatedBrent costless collars, as reference prices exceeded the ceilingprice on those instruments, partially offset by amounts received onWTI extendable swaps. This realized loss was higher than theprevious quarter (where the loss related primarily to premiums paidon funded collars and put options) and was lower than the samequarter in the previous year (where the loss related both topremiums and amounts paid for settlement).

ROYALTIES

In Canada, royalties as a percentage of salesfor the three months ended March 31,2013 was 10.7% as compared to 9.6% for the prior quarter and11.1% for the comparative period of the prior year. Crude oiland NGL royalties as a percentage of sales for the current quarterof 11.4% increased slightly from 10.4% for the prior quarter butdecreased from 12.2% for the first quarter of 2012. Thetiming of putting additional horizontal Cardium wells on productionresults in slight changes to realized royalty rates arising from aroyalty incentive applied to initial production volumes from thesewells.

In France, the primary portion of the royaltiesis levied in Euros and is based on units of production and thatcomponent, therefore, is not subject to changes in commodityprices. Royalties as a percentage of sales for the threemonths ended March 31, 2013 increasedto 5.6% from 5.2% and 5.3% for the three months ended December 31, 2012 and March 31, 2012, respectively, due to the impactof a stronger Euro year-over-year.

Production in the Netherlands and Australia isnot subject to royalties.

OPERATING EXPENSE

In Canada, first quarter operating expense of$13.8 million was lower than the$14.5 million for the fourth quarterof 2012 as a result of costs incurred in the prior quarterassociated with two facility turnarounds partially offset by highercosts in the first quarter of this year related to salaries andbenefits, fuel and electricity and chemical usage. Operatingexpense for the first quarter of 2013 was also lower as compared tothe $14.3 million for the firstquarter of the prior year as a result of some non-operatedequalizations received in that period. Operating costs perboe for the three months ended March 31,2013, decreased as compared to the previous quarter and thefirst quarter of 2012 as a result of lower expense and highervolumes.

In France, first quarter operating expense of$19.9 million was higher than boththe fourth quarter 2012 expense of $13.7million and the expense of $15.1million for the first quarter of 2012 largely as a result ofthe inventory draw that occurred in the current quarter. Wheninventoried product is sold, the related costs are expensed in theperiod of sale. Despite higher production volumes in thefirst quarter of 2013 as compared to the fourth quarter of 2012,the timing of downhole work and increased electricity costsresulted in an increase in operating expense per boe to$17.58 for the current quarter from$15.97 for the prior quarter.

In the Netherlands, operating expense for thethree months ended March 31, 2013 of$4.0 million decreased from$5.7 million in the prior quarter andwas consistent with the $4.1 millionfor the first quarter of 2012. The quarter-over-quarterdecrease is attributable to the timing of project work.Operating expense per boe for the three months ended March 31, 2013 similarly decreased versus theprevious quarter and the first quarter of 2012 as a result of lowerexpenses coupled with higher volumes.

In Australia, first quarter operating expenseincreased to $14.8 million from theprevious quarter's expense of $9.7million due to a draw in crude oil inventory associated withshipment timing. A decrease in crude oil inventory results inthe related production costs being expensed when the product issold. On a per boe basis, operating expense for the firstquarter of 2013 was higher than the previous quarter and the firstquarter of 2012 as a result of lower production volumes in thecurrent quarter due to two cyclones and drilling activities thatresulted in unplanned downtime.

TRANSPORTATION EXPENSE

Consolidated transportation expense was higherfor the first quarter of 2013 as compared to the fourth quarter of2012. This increase was primarily the result of higher salesvolumes in Canada and an increased number of shipments in Francefrom the Aquitaine basin.

Consolidated transportation expense for thefirst quarter of 2013 was consistent with the expense for the sameperiod in 2012 as a result of lower payments under the ship or payagreement related to the Corrib project, mostly offset by highervolumes in both Canada and France.

OTHER (INCOME) EXPENSE

Other expense for the three months endedMarch 31, 2012 was comprisedprimarily of $8.5 million relating totransfer taxes paid to regulatory authorities in France pursuant tothe first quarter of 2012 acquisition of certain working interestsin six producing fields located in the Paris and Aquitaine basinsin France.

GENERAL AND ADMINISTRATION EXPENSE

General and administration expense for the firstquarter of 2013 was higher than the expense for both the previousquarter and the first quarter of 2012 due to increased staffinglevels to support Vermilion's operational activities coupled withexpenditure timing.

EQUITY BASED COMPENSATION EXPENSE

Equity based compensation expense relates tonon-cash compensation expense attributable to long-term incentivesgranted to directors, officers and employees under the VermilionIncentive Plan (VIP). The expense is recognized over the vestingperiod based on the grant date fair value of awards, adjusted forthe ultimate number of awards that actually vest as determined bythe Company's achievement of performance conditions.

Equity based compensation expense for the firstquarter of 2013 was lower than the preceeding quarter as the fourthquarter of 2012 included additional expense resulting from a changein performance condition assumptions. As the first quarter of2013 also reflected this change in performance conditionassumptions, equity based compensation expense for the currentquarter was higher than the expense for the same quarter in2012.

INTEREST EXPENSE

Interest expense increased during the currentquarter as compared to both the prior quarter and same quarter inthe previous year primarily due to increased borrowings underVermilion's revolving credit facility.

DEPLETION AND DEPRECIATION, ACCRETION, IMPAIRMENTS AND GAINON ACQUISITION

Depletion and depreciation expense on a per boebasis was relatively consistent for the first quarter of 2013 ascompared to both the first and fourth quarters of 2012. Theslight increase in the current quarter was higher primarily due tothe result of higher finding, development and acquisition costsincurred from additional liquids development in Canada and theacquisitions in France in 2012.

Accretion expense decreased for the firstquarter of 2013 as compared to the fourth quarter of 2012 as aresult of a decrease in asset retirement obligations. Thisdecrease occurred in Canada, due to a change in estimate recordedin the fourth quarter of 2012, and was partially offset by assetretirement obligations recorded on the fourth quarter of 2012acquisition in France. On a year-over-year basis, accretionexpense increased as the aforementioned decrease in Canada's assetretirement obligations were offset by asset retirement obligationsassumed on the France acquisition in the fourth quarter of2012.

The impairment losses for the first quarter of2012 pertained to impairment losses recorded on Vermilion'sconventional deep gas and shallow coal bed methane natural gasplays. These impairment charges were the result ofsignificant declines in the forward pricing assumptions for naturalgas in Canada.

The gain on acquisition for the first quarter of2012 relates to Vermilion's acquisition of certain workinginterests in the Paris and Aquitaine basins in France. Thegain arose as a result of the increase in the fair value of theacquired petroleum and natural gas reserves from the time when theacquisition was negotiated to the acquisition date. Theincrease resulted from a change in the underlying commodity priceforecasts used to determine the fair value of the acquiredreserves.

TAXES

Vermilion pays current taxes in France, theNetherlands and Australia. Corporate income taxes in Franceand the Netherlands apply to taxable income after eligibledeductions. In France, taxable income is taxed at a rate ofapproximately 34.4%, plus an additional profit tax of 1.7% levieduntil 2014 if annual gross revenues exceed 250 million Euros. In the Netherlands,taxable income is taxed at a rate of approximately 46%. As afunction of the impact of Vermilion's Canadian tax pools, theCompany does not presently pay current taxes in Canada. TheCanadian segment includes holding companies that pay current taxesin foreign jurisdictions.

In Australia, current taxes include bothcorporate income taxes and PRRT. Corporate income taxes areapplied at a rate of approximately 30% on taxable income aftereligible deductions, which include PRRT. PRRT is a profitbased tax applied at a rate of 40% on sales less eligibleexpenditures, including operating expenses and capitalexpenditures.

Total current taxes before PRRT was higher inthe first quarter of 2013 as compared to the fourth quarter of 2012as a result of increased sales in France and Australia, in additionto the absence of certain deductions for asset retirementobligations and depletion recorded in the Netherlands for thefourth quarter of 2012. Total current taxes before PRRT wasrelatively consistent for the first quarter of 2013 as compared tothe same period in the prior year.

PRRT increased for the first quarter of 2013compared to fourth quarter of 2012 as a result of an inventory drawin the current quarter. On a year-over-year basis, thedecrease in PRRT is a result of higher capital expenditures inAustralia.

FOREIGN EXCHANGE

As a result of Vermilion's internationaloperations, Vermilion conducts business in currencies other thanthe Canadian dollar and has monetary assets and liabilities(including cash, receivables, payables, derivative assets andliabilities, and intercompany loans) denominated in suchcurrencies. Vermilion's exposure to foreign currenciesincludes the U.S. Dollar, the Euro and the Australian Dollar.

Foreign exchange gains and losses are comprisedof both unrealized and realized amounts. Unrealized foreignexchange gains and losses are the result of translating monetaryassets and liabilities held in non-functional currencies to therespective functional currencies of Vermilion and itssubsidiaries. Realized gains and losses are the result offoreign exchange fluctuations and the timing of payments ontransactions conducted in non-functional currencies and as such aresubject to fluctuations.

For the first quarter of 2013, the unrealizedforeign exchange loss primarily resulted from the impact of theappreciation of the Canadian dollar against the Euro and theresultant impact on Euro denominated loans made by Vermilion to itssubsidiaries.

SUMMARY OF RESULTS

The fluctuations in Vermilion's petroleum andnatural gas sales and net earnings (loss) from quarter-to-quarterare primarily caused by variations in sales volumes, crude oil andnatural gas prices and the impact of royalties and tax legislationin the jurisdictions in which Vermilion operates. Inaddition, petroleum and natural gas prices may impact gains andlosses on derivative instruments and may result in impairmentcharges or the reversal of impairment charges incurred in previousperiods.

LIQUIDITY AND CAPITAL RESOURCES

Vermilion's net debt as at March 31,2013 was $744.8 millioncompared to $677.2 million as atDecember 31, 2012.

Long-term debt was comprised of the following:

Revolving Credit Facility

At March 31, 2013,Vermilion had in place a bank revolving credit facility totalling$950 million, of which approximately$490.3 million was drawn. Thefacility, which matures in May of 2015, is fully revolving up tothe date of maturity.

The facility is extendable from time to time,but not more than once per year, for a period not longer than threeyears, at the option of the lenders and upon notice fromVermilion. If no extension is granted by the lenders, theamounts owing pursuant to the facility are repayable on thematurity date. This facility bears interest at a rateapplicable to demand loans plus applicable margins.

The amount available to Vermilion under thisfacility is reduced by outstanding letters of credit associatedwith Vermilion's operations totalling $49.1million as at March 31, 2013(December 31, 2012 - $49.2 million).

The facility is secured by various fixed andfloating charges against the subsidiaries of Vermilion. Underthe terms of the facility, Vermilion must maintain a ratio of totalbank borrowings (defined as consolidated total debt), toconsolidated net earnings before interest, income taxes,depreciation, accretion and other certain non-cash items of notgreater than 4.0. In addition, Vermilion must maintain aratio of consolidated total senior debt (consolidated total debtexcluding unsecured and subordinated debt) to consolidated netearnings before interest, income taxes, depreciation, accretion andother certain non-cash items of not greater than 3.0.

As at March 31,2013, Vermilion was in compliance with its financialcovenants.

Senior Unsecured Notes

On February 10,2011, Vermilion issued $225.0million of senior unsecured notes at par. The notesbear interest at a rate of 6.5% per annum and will mature onFebruary 10, 2016. As directsenior unsecured obligations of Vermilion, the notes rank paripassu with all other present and future unsecured andunsubordinated indebtedness of the Company.

Vermilion may, at its option, prior toFebruary 10, 2014, redeem up to 35%of the notes with net proceeds of equity offerings by the Companyat a redemption price equal to 106.5% of the principal amount ofthe notes to be redeemed, plus accrued and unpaid interest, if any,to the applicable redemption date. Subsequently, Vermilionmay, on or after February 10, 2014,redeem all or part of the notes at fixed redemption prices, plus,in each case, accrued and unpaid interest, if any, to theapplicable redemption date. The notes were initiallyrecognized at fair value net of transaction costs and aresubsequently measured at amortized cost using an effective interestrate of 7.1%.

ASSET RETIREMENT OBLIGATIONS

The decrease in asset retirement obligations wasprimarily the result of an overall increase in the discount ratesapplied to the obligations. This decrease was partiallyoffset by accretion and additions from new wells drilled during thequarter.

DIVIDENDS

During the three months ended March 31, 2013, Vermilion maintained monthlydividends at $0.20 per share anddeclared dividends totalling $59.6million.

Excess cash flows from operating activities overdividends declared are used to fund capital expenditures, assetretirement obligations and debt repayments.

Following Vermilion's conversion to a trust inJanuary 2003, the distributionremained at $0.17 per unit per monthuntil it was increased to $0.19 perunit per month in December2007. Effective September 1,2010, Vermilion converted to a dividend paying corporationand dividends remained at $0.19 pershare per month until increased to $0.20 per share per month in January 2013. The January 2013 increase was announced onNovember 14, 2012 and resulted in anincrease in the monthly cash dividends by 5.3% to $0.20 per share per month beginning with theJanuary 2013 dividend (paid onFebruary 15, 2013).

Vermilion's policy with respect to dividends isto be conservative and maintain a low ratio of dividends to fundflows from operations. During low price commodity cycles,Vermilion will initially maintain dividends and allow the ratio torise. Should low commodity price cycles remain for anextended period of time, Vermilion will evaluate the necessity ofchanging the level of dividends, taking into consideration capitaldevelopment requirements, debt levels and acquisitionopportunities.

Over the next two years, Vermilion anticipatesthat Corrib, Cardium and other exploration and developmentactivities will require a significant capital investment byVermilion. Although Vermilion currently expects to be able tomaintain its current dividend, Vermilion's fund flows fromoperations may not be sufficient during this period to fund cashdividends, capital expenditures and asset retirementobligations. Vermilion will evaluate its ability to financeany shortfalls with debt, issuances of equity or by reducing someor all categories of expenditures to ensure that total expendituresdo not exceed available funds.

SHAREHOLDERS' EQUITY

During the three months ended March 31, 2013, Vermilion issued 0.3 millionshares pursuant to the dividend reinvestment plan and Vermilion'sequity based compensation programs. Shareholders' capitalincreased by $16.2 million as aresult of the issuance of those shares.

As at March 31,2013, there were 99.5 million shares outstanding. Asat April 30, 2013, there were 101.2million shares outstanding.

CORRIB PROJECT

Vermilion holds an 18.5% non-operating interestin the offshore Corrib gas field located off the northwest coast ofIreland. Production from Corrib is expected to increaseVermilion's volumes by approximately 55 mmcf/d (9,000 boe/d) oncethe field reaches peak production. Vermilion acquired its18.5% working interest in the project on July 30, 2009. The project comprises fiveoffshore wells, both offshore and onshore pipeline segments as wellas a natural gas processing facility. At the time of theacquisition most of the key components of the project, with theexception of the onshore pipeline, were either complete or in thelatter stages of development. Vermilion's interest wasacquired for cash consideration of $136.8million with subsequent capital expenditures to March 31, 2013 of $319.1million, primarily related to completion of the natural gasprocessing facility, sub-surface well work, and permitting,preparations and construction of the onshore pipeline.Furthermore, pursuant to the terms of the acquisition agreement,Vermilion made an additional payment to the vendor of $134.3 million (US$135million) at the end of 2012. In 2011, approvals andpermissions were granted for the onshore gas pipeline and tunnelingactivities commenced in December of 2012. Vermilion expectsto continue significant capital investment on this project over thenext two years and currently expects to achieve initial gasproduction from this field in late 2014 or early 2015, and to reachpeak production levels in mid-2015.

RISK MANAGEMENT

Vermilion is exposed to various market andoperational risks. For a detailed discussion of these risks,please see Vermilion's Annual Report for the year endedDecember 31, 2012.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements inaccordance with IFRS requires management to make estimates,judgments and assumptions that affect reported assets, liabilities,revenues and expenses, gains and losses, and disclosures of anypossible contingencies. These estimates and assumptions aredeveloped based on the best available information which managementbelieved to be reasonable at the time such estimates andassumptions were made. As such, these assumptions areuncertain at the time estimates are made and could change,resulting in a material impact on Vermilion's consolidatedfinancial statements. Estimates are reviewed by management onan ongoing basis, and as a result, certain of these estimates maychange from period to period due to the availability of newinformation. Additionally, as a result of the unique circ*mstancesof each jurisdiction that Vermilion operates in, the criticalaccounting estimates may affect one or more jurisdictions.

The following outlines what management believesto be the most critical accounting policies involving the use ofestimates and assumptions:

OFF BALANCE SHEET ARRANGEMENTS

Vermilion has certain lease agreements that areentered into in the normal course of operations, all of which areoperating leases and accordingly no asset or liability value hasbeen assigned to the consolidated balance sheet as at March 31, 2013.

Vermilion has not entered into any guarantee oroff balance sheet arrangements that would materially impactVermilion's financial position or results of operations.

INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in Vermilion's internalcontrol over financial reporting that occurred during the periodcovered by this MD&A that has materially affected, or isreasonably likely to materially affect, its internal control overfinancial reporting.

RECENTLY ADOPTED ACCOUNTINGPRONOUNCEMENTS

As of January 1,2013, Vermilion adopted the following standards andamendments as issued by the IASB. The adoption of thesestandards did not have a material impact on Vermilion'sconsolidated financial statements.

IFRS 10 "Consolidated FinancialStatements"
IFRS 10 replaced Standing Interpretations Committee 12,"Consolidation - Special Purpose Entities" and the consolidationrequirements of IAS 27 "Consolidated and Separate FinancialStatements". The new standard replaces the existing risk andrewards based approaches and establishes control as the determiningfactor when determining whether an interest in another entityshould be included in the consolidated financialstatements.

IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". Thenew standard focuses on the rights and obligations of anarrangement, rather than its legal form. The standardredefines joint operations and joint ventures and requires jointoperations to be proportionately consolidated and joint ventures tobe equity accounted.

IFRS 12 "Disclosure of Interests in OtherEntities"
IFRS 12 provides comprehensive disclosure requirements on interestsin other entities, including joint arrangements, associates, andspecial purpose entities. The new disclosures are intended toassist financial statement users in evaluating the nature, risksand financial effects of an entity's interest in subsidiaries andjoint arrangements.

IFRS 13 "Fair Value Measurement"
IFRS 13 provides a common definition of fair value withinIFRS. The new standard provides measurement and disclosureguidance and applies when another IFRS requires or permits an itemto be measured at fair value, with limited exceptions.

IAS 34 "Interim Financial Reporting"
Amendments to IAS 34 require specific disclosure on the fair valueof financial instruments for interim reporting.

ACCOUNTING PRONOUNCEMENTS NOT YETADOPTED

The adoption of the following standards is notexpected to have a material impact on Vermilion's consolidatedfinancial statements:

IFRS 9 "Financial Instruments"
As of January 1, 2015, Vermilion willbe required to adopt IFRS 9, as part of the first phase of theIASB's project to replace IAS 39, "Financial Instruments:Recognition and Measurement". The new standard replaces the currentmultiple classification and measurement models for financial assetsand liabilities with a single model that has only twoclassification categories: amortized cost and fair value.

NETBACKS

The following table includes segmented financial statementinformation on a per unit basis. Natural gas sales volumeshave been converted on a basis of six thousand cubic feet ofnatural gas to one barrel of oil equivalent.

CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)

CONSOLIDATED STATEMENTS OF NET EARNINGS AND COMPREHENSIVEINCOME
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHAREAMOUNTS, UNAUDITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)

DESCRIPTION OF EQUITY RESERVES

Shareholders' capital
Represents the recognized amount for common shares when issued, netof equity issuance costs and deferred taxes.

Contributed surplus
Represents the recognized value of employee awards which aresettled in shares. Once vested, the value of the awards istransferred to shareholders' capital.

Accumulated other comprehensiveloss
Represents the cumulative income and expenses which are notrecorded immediately in net earnings and are accumulated until anevent triggers recognition in net earnings. The current balanceconsists of currency translation adjustments resulting fromtranslating financial statements of subsidiaries with a foreignfunctional currency to Canadian dollars at period end rates.

Retained earnings (deficit)
Represents the cumulative net earnings less distributed earnings ofVermilion Energy Inc.

NOTES TO THE CONDENSED CONSOLIDATED INTERIMFINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,2013 AND 2012
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHAREAND PER SHARE AMOUNTS, UNAUDITED)

1. BASIS OF PRESENTATION

Vermilion Energy Inc. (the "Company" or"Vermilion") is a corporation governed by the laws of the Provinceof Alberta and is actively engaged in the business of crude oil andnatural gas exploration, development, acquisition andproduction.

These condensed consolidated interim financialstatements are in compliance with IAS 34, "Interim financialreporting" and have been prepared using the same accountingpolicies and methods of computation as Vermilion's consolidatedfinancial statements for the year ended December 31, 2012, except as discussed in Note2.

These condensed consolidated interim financialstatements should be read in conjunction with Vermilion'sconsolidated financial statements for the year ended December 31, 2012, which are contained withinVermilion's Annual Report for the year ended December 31, 2012 and are available on SEDAR atwww.sedar.com or on Vermilion's website atwww.vermilionenergy.com.

These condensed consolidated interim financialstatements were approved and authorized for issuance by the Boardof Directors of Vermilion on April 30,2013.

2. RECENTLY ADOPTED ACCOUNTINGPRONOUNCEMENTS

As of January 1, 2013, Vermilionadopted the following standards and amendments as issued by theIASB. The adoption of these standards did not have a materialimpact on Vermilion's consolidated financial statements.

IFRS 10 "Consolidated Financial Statements"
IFRS 10 replaced Standing Interpretations Committee 12,"Consolidation - Special Purpose Entities" and the consolidationrequirements of IAS 27 "Consolidated and Separate FinancialStatements". The new standard replaces the existing risk andrewards based approaches and establishes control as the determiningfactor when determining whether an interest in another entityshould be included in the consolidated financialstatements.

IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". Thenew standard focuses on the rights and obligations of anarrangement, rather than its legal form. The standardredefines joint operations and joint ventures and requires jointoperations to be proportionately consolidated and joint ventures tobe equity accounted.

IFRS 12 "Disclosure of Interests in Other Entities"
IFRS 12 provides comprehensive disclosure requirements on interestsin other entities, including joint arrangements, associates, andspecial purpose entities. The new disclosures are intended toassist financial statement users in evaluating the nature, risksand financial effects of an entity's interest in subsidiaries andjoint arrangements.

IFRS 13 "Fair Value Measurement"
IFRS 13 provides a common definition of fair value withinIFRS. The new standard provides measurement and disclosureguidance and applies when another IFRS requires or permits an itemto be measured at fair value, with limited exceptions.

IAS 34 "Interim Financial Reporting"
Amendments to IAS 34 require specific disclosure on the fair valueof financial instruments for interim reporting. Thesedisclosures are included in Note 11.

3. CAPITAL ASSETS

The following table reconciles the change in Vermilion's capitalassets:

4. EXPLORATION AND EVALUATION ASSETS

The following table reconciles the change in Vermilion'sexploration and evaluation assets:

5. ASSET RETIREMENT OBLIGATIONS

The following table reconciles the change inVermilion's asset retirement obligations:

6. LONG-TERM DEBT

The following table summarizes Vermilion'soutstanding long-term debt:

Revolving Credit Facility

At March 31, 2013,Vermilion had in place a bank revolving credit facility totalling$950 million, of which approximately$490.3 million was drawn. Thefacility, which matures in May of 2015, is fully revolving up tothe date of maturity.

The facility is extendable from time to time,but not more than once per year, for a period not longer than threeyears, at the option of the lenders and upon notice fromVermilion. If no extension is granted by the lenders, theamounts owing pursuant to the facility are repayable on thematurity date. This facility bears interest at a rateapplicable to demand loans plus applicable margins.

The amount available to Vermilion under thisfacility is reduced by outstanding letters of credit associatedwith Vermilion's operations totalling $49.1million as at March 31, 2013(December 31, 2012 - $49.2 million).

The facility is secured by various fixed andfloating charges against the subsidiaries of Vermilion. Underthe terms of the facility, Vermilion must maintain a ratio of totalbank borrowings (defined as consolidated total debt), toconsolidated net earnings before interest, income taxes,depreciation, accretion and other certain non-cash items of notgreater than 4.0. In addition, Vermilion must maintain aratio of consolidated total senior debt (consolidated total debtexcluding unsecured and subordinated debt) to consolidated netearnings before interest, income taxes, depreciation, accretion andother certain non-cash items of not greater than 3.0.

As at March 31,2013, Vermilion was in compliance with its financialcovenants.

Senior Unsecured Notes

On February 10,2011, Vermilion issued $225.0million of senior unsecured notes at par. The notesbear interest at a rate of 6.5% per annum and will mature onFebruary 10, 2016. As directsenior unsecured obligations of Vermilion, the notes rank paripassu with all other present and future unsecured andunsubordinated indebtedness of the Company.

Vermilion may, at its option, prior toFebruary 10, 2014, redeem up to 35%of the notes with net proceeds of equity offerings by the Companyat a redemption price equal to 106.5% of the principal amount ofthe notes to be redeemed, plus accrued and unpaid interest, if any,to the applicable redemption date. Subsequently, Vermilionmay, on or after February 10, 2014,redeem all or part of the notes at fixed redemption prices, plus,in each case, accrued and unpaid interest, if any, to theapplicable redemption date. The notes were initiallyrecognized at fair value net of transaction costs and aresubsequently measured at amortized cost using an effective interestrate of 7.1%.

7. SHAREHOLDERS' CAPITAL

The following tables reconcile the change inVermilion's shareholders' capital:

Dividends declared to shareholders for the threemonths ended March 31, 2013 were$59.6 million.

Subsequent to the end of the period and prior tothe condensed consolidated interim financial statements beingauthorized for issue on April 30,2013, Vermilion declared dividends totalling $20.2 million or $0.20 per share.

8. EQUITY BASED COMPENSATION

The following table summarizes the number ofawards outstanding under the Vermilion Incentive Plan ("VIP"):

The fair value of a VIP award is determined onthe grant date at the closing price of Vermilion's common shares onthe Toronto Stock Exchange, adjusted by the estimated performancefactor that will ultimately be achieved. Dividends, whichnotionally accrue to the awards during the vesting period, are notincluded in the determination of grant date fair values.

9. SEGMENTED INFORMATION

The following segment information has beenprepared by segregating the results into the geographic areas inwhich Vermilion operates. The following amounts includetransactions between segments, which are recorded at fair value atthe date of recognition.

Reconciliation of operating income to net earnings

10. CAPITAL DISCLOSURES

The ratio of net debt to annualized fund flowsfrom operations was higher in the current year as compared to theprior year primarily as a result of an increase in net debt.The increase in net debt was the result of the two acquisitionsthat occurred in France during the first and fourth quarter of 2012and capital expenditures pertaining to the Ireland assets, whichare currently under development.

Vermilion is subject to certain externallyimposed capital requirements under its revolving creditfacility. During the periods covered by these consolidatedfinancial statements, Vermilion continued to comply with theserequirements.

11. FINANCIAL INSTRUMENTS

Classification of Financial Instruments

The following table summarizes information relating toVermilion's financial instruments as at March 31, 2013 and December 31, 2012:

The accounting designations used in the abovetable refer to the following:

HFT - Classified as "Held for trading" inaccordance with International Accounting Standard 39 "FinancialInstruments: Recognition and Measurement". These financialassets and liabilities are carried at fair value on theconsolidated balance sheets with associated gains and lossesreflected in net earnings.

LAR - "Loans and receivables" are initiallyrecognized at fair value and are subsequently measured at amortizedcost. Impairments and foreign exchange gains and losses arerecognized in net earnings.

OTH - "Other financial liabilities" areinitially recognized at fair value net of transaction costsdirectly attributable to the issuance of the instrument andsubsequently are measured at amortized cost. Interest isrecognized in net earnings using the effective interestmethod. Foreign exchange gains and losses are recognized innet earnings.

Level 1 - Fair value measurement is determinedby reference to unadjusted quoted prices in active markets foridentical assets or liabilities.

Level 2 - Fair value measurement is determinedbased on inputs other than unadjusted quoted prices that areobservable, either directly or indirectly.

Level 3 - Fair value measurement is based oninputs for the asset or liability that are not based on observablemarket data.

Determination of Fair Values

The level in the fair value hierarchy into whichthe fair value measurements are categorized is determined on thebasis of the lowest level input that is significant to the fairvalue measurement. Transfers between levels on the fair valuehierarchy are deemed to have occurred at the end of the reportingperiod.

Fair values for derivative assets and derivativeliabilities are determined using pricing models incorporatingfuture prices that are based on assumptions which are supported byprices from observable market transactions and are adjusted forcredit risk.

The carrying value of receivables approximatetheir fair value due to their short maturities.

The carrying value of long-term debt outstandingon the revolving credit facility approximates its fair value due tothe use of short-term borrowing instruments at market rates ofinterest.

The fair value of the senior unsecured noteschanges in response to changes in the market rates of interestpayable on similar instruments and was determined with reference toprevailing market rates for such instruments.

Nature and Extent of Risks Arising from FinancialInstruments

Market risk:
Vermilion's financial instruments are exposed to currency riskrelated to changes in foreign currency denominated financialinstruments and commodity price risk related to outstandingderivative positions. The following table summarizes what theimpact on comprehensive income before tax would be for the threemonths ended March 31, 2013 givenchanges in the relevant risk variables that Vermilion considerswere reasonably possible at the balance sheet date. Theimpact on comprehensive income before tax associated with changesin these risk variables for assets and liabilities that are notconsidered financial instruments are excluded from thisanalysis. This analysis does not attempt to reflect anyinterdependencies between the relevant risk variables.

SOURCE Vermilion Energy Inc.